‘I will be surprised if RBI raises rates again’

The country’s largest commercial bank, State Bank of India (SBI) does not expect another round of interest rate hike by the Reserve Bank of India (RBI) when it announces its next round of policy initiatives at the end of July 2011.

“I will be totally surprised if RBI raises interest rates again. It has already raised the policy rates a number of times and now we (banks) need a break,” said SBI Chairman Pratip Chaudhuri in an interview with Deccan Herald. He was in town to launch SBI’s combo debit-cum-transit card for the Bangalore Metro. Since RBI has already raised repo rate (rate at which banks borrow money from RBI) and reverse-repo rate (rate at which RBI’s take money from the commercial banks) 10 times in the last 15 months, banks were forced to raise their lending rates steeply over the last one year. It has now reached a stage when there is a lot of resistance from the borrowers to take money at higher rates.  The SBI, in fact, has lowered its projections on credit growth rate for the financial year 2011-12 to 16-19 per cent from earlier 19-22 per cent. Asked about the credit growth in the first quarter (April-June 2011), Chaudhuri said that it is in line with the projection though the first quarter is generally a bit lean period. The impact of high rate of interest was already visible on corporate borrowing which remained stagnant for SBI in the first quarter. Credit pick up from the agricultural sector and for infrastructure projects, however, has picked up in the recent months. Though many banks have already raised their base lending rates, SBI will take a decision on the rate hike very soon, Chaudhuri said.  He is also of the view that the bank will be able to maintain its profitability in the first quarter though there is a slight decline in the net interest margins to slightly above 3 per cent against 3.15 in the first quarter, the previous year. The bank had surprised the market in May, this year when it announced a huge jump in provisions in the fourth quarter of the last financial leading to a 98 per cent drop in net profit. When asked if the cleansing operation is over, Chaudhuri said that, “There is still some pain left.” According to him the provisions for pension liability is still large and will have to be provided in chunks in the current year.  Asked if the banks should adhere to the regulator’s request to fund the microfinance institutions (MFI), Chaudhuri said, “MFIs are not banks’ liabilities. We will take our on call and provide them finance purely on merit basis.” He is of the view that if RBI does not allow MFIs to raise deposits from public fearing the credit risk, banks should not be pushed to lend them money.

Deccan Herald

Chatterjee Group to set up private bank in Bengal

Kolkata  : The Chatterjee Group (TCG) is looking at setting up a private bank in West Bengal. Talking to reporters after a meeting Chief Minister Mamata Banerjee at state Secretariat here Wednesday, TCG chairman Purnendu Chatterjee said, ‘The chief minister has encouraged us to look for new kinds of banking institutions in the state. Bengal has remained under-banked for long.’  The Group is applying with the Reserve Bank of India (RBI) for necessary license.  State Commerce and Industries Minister Partha Chatterjee said although the government will not have any equity participation in the bank, it will support the Group.

News One

PNB to finalise life insurance joint venture

Chennai, July 6 (IANS) Public sector Punjab National Bank (PNB) is likely to firm up its life insurance foray by this September, said a top official here Wednesday. ‘We are looking to tie with an existing life insurer, and have shortlisted companies like Aviva Life and Metlife Insurance,’ K.R. Kamath, chairman and managing director, told reporters. With public sector banks like State Bank of India, Canara Bank, Oriental Bank of Commerce, Bank of India and others having a major presence in the life insurance sector leveraging their vast branch network, it is logical for PNB to look at the sector. The bank was also in talks with Bharti Axa Life. However, the Bharti group recently announced its stake sale to Reliance Industries. According to Kamath, the pressure on the net interest margin (NIM) due to upward revision in interest rates by the Reserve Bank of India (RBI), the PNB is not looking at increasing its non interest income through loan syndication activities and others. PNB has syndication cells in New Delhi, Chenai and Mumbai and has done a business of around Rs.60 crore.

News One

High FD rates lower currency circulation

High interest rates on fixed deposits (FD) are luring investors to park their money with the banks resulting in a fall in growth of currency in circulation. Banks are witnessing a strong deposit growth of around 20 per cent compared to last year on the back of high interest rates on fixed deposits that is higher than the rate at which money is being circulated in the system. According to a report by Nomura, there has been a steady fall in the growth of currency in circulation in June compared with last year. Growth in currency in circulation has been falling steadily from its peak of 21.2 per cent year-on-year in August 2010 to a 14-month low of 15.8 per cent in June, said Nomura. “Opportunity cost of holding cash has gone down. As the deposits rates are high and attractive, investors are putting their money in FDs,” said Sonal Varma, India economist, Nomura. According to Nomura, another reason for fall in currency in circulation is the slowdown in economic activity and a moderation of asset prices which has reduced transaction demand for money. Most banks are offering 8-8.5 per cent interest on fixed deposits of one to three year maturity. The Small Industries Development Bank of India (Sidbi) has begun offering 9.8 per cent interest on FD of 12-13 months maturity, highest rate offered by any bank for the 12-month tenure. Deposit rates which had peaked to 10 per cent for one to three year maturity in end of 2008, had fallen to 6-6.5 per cent during end of 2009 and till end of 2010. Interest rates started picking up in the last quarter of 2010-11 after series of rate hikes by RBI. According to the Reserve Bank of India data, deposits for the banking system grew 18.21 per cent year-on-year in the fortnight ended June 17 to Rs 53,44,700.99 crore. Interest on bank deposits have gone up by 2.75-3 per cent across various maturities in the last one-year. P Sitaram, chief financial officer, IDBI Bank said that there has been an increase in deposits this year due to higher rates. A senior official of Bank of Baroda said, “For monetary transmission of RBI’s series of rate hikes since March 2010, banks have been forced to hike deposit rates. The rates are very attractive for retail investors. In this quarter we have witnessed a strong growth in deposits.” The sharp rise in currency in circulation last year was due to a mix of factors. High inflation, strong growth, low bank deposit rates and rising asset prices were cyclical factors driving increased public demand for cash from transaction.

Financial Chronicle

RBI to be regulator for MFIs

The government has proposed to bring all micro finance institutions (MFIs) under the ambit of the Reserve Bank of India (RBI). The central bank will have the powers to formulate policies for the sector and regulate it, the finance ministry said in the draft of The Micro Finance Institutions (Development and Regulation) Bill, released on Wednesday for public comment. The earlier Bill of 2007, which has lapsed, had sought to regulate only those MFIs not under the ambit of any law. So, banks and a few categories of non-banking finance companies (NBFCs) were kept outside the purview of the Bill. The revised Bill proposes to empower RBI to issue directions to MFIs on margin caps, tenure of loans, periodicity of repayment schedules, levy of processing fees, interest and life insurance premium, among others. It will also be allowed to specify the maximum annual percentage rate that can be charged by an MFI on the financial assistance granted to any client. The Malegam committee of RBI had recommended an average ‘margin cap’ of 10 per cent for MFIs having a loan portfolio of Rs 100 crore, of 12 per cent for smaller MFIs and a cap of 24 per cent for interest on individual loans. Currently, most MFIs are charging an interest rate over 24 per cent. Depending on the size of their operations and other relevant parameters, MFIs will be required to maintain the percentage of margin as may be specified by RBI from time to time. MFIs will have to convey to every borrower the annual percentage rate, comprising the annual interest rate, processing fees or any other charges or fees levied by them. The Bill says every micro lender must create reserve funds for loans and refinance to other micro-finance companies. In the sector, self-help group bank linkages account for 58 per cent of loans due, NBFCs have another 34 per cent and others such as trusts and societies account for the balance. All banks and NBFCs are regulated by RBI. There is, however, no separate category for NBFCs operating in the microfinance sector. The Bill said MFIs would not be allowed to restructure their business without prior approval of RBI. It would be mandatory for all MFIs to register with the central bank. MFIs with net owned funds of less than Rs 5 lakh wouldn’t be allowed to register. RBI, with the previous approval of the central government, will be allowed to delegate any of its powers conferred under this Act to the National Bank for Agriculture and Rural Development in respect of any micro finance institution or a class of micro finance institutions. The Bill also enables the Centre to constitute a Council, to be known as the Micro Finance Development Council, to advise it on formulation of policies and other measures required in the interest of orderly growth and development of the sector.

BS

RBI to regulate micro finance sector, says new Bill

NEW DELHI: The government on Wednesday released the draft Micro Financial Sector (Development and Regulation) Bill, 2011, which seeks to make it mandatory for all microfinance institutions to be registered with the Reserve Bank, making it the sector regulator.  The Bill in its earlier avtar had proposed that the National Bank for Agriculture and Rural Development (NABARD) will be the regulator of the sector. The government had introduced the Micro Financial Sector Bill in March 2007 in the Lok Sabha. However, the Bill lapsed as the term of 14 Lok Sabha expired in 2009.  The latest draft Bill proposes that a micro finance institution has to be registered with the Reserve Bank with the minimum net owned fund of Rs 5 lakh.  Besides, a Micro Finance Development Council will be set up to advise the government on formulation of policies, schemes and other measures required in the interest of orderly growth and development of the sector and micro finance institutions, to promote financial inclusion.  The council will comprise of members not below the rank of Executive Director from NABARD, National Housing Bank, RBI and SIDBI. Besides, Joint Secretaries from Ministry of Finance and the Ministry of Rural Development will also be members.  It also proposes that any micro finance institution which is not a company registered under the Companies Act, 1956 and which becomes systemically important micro finance institution shall convert its institution into a company registered under the Companies Act, 1956 with or without a licence under section 25 of the Companies Act, 1956.  It should happen within six months from the date of the balance sheet which shows that it has become systematically important micro finance institution in terms of the rules prescribed by the Central government, its draft Bill said.  The RBI may pass an order directing micro finance institution to cease and desist from continuing the micro finance activities if it is found acting in manner prejudicial to the interest of its clients or depositors. The RBI would cancel the certificate of registration granted to a micro finance institution if it fails to comply with the directives or condition.

ET 

RBI to regulate the entire micro finance universe

New Delhi The draft Micro Financial Sector (Development and Regulation) Bill, 2011, seeks to make it mandatory for the Rs 20,000 crore microfinance industry to be registered with the Reserve Bank, making it the sector regulator. The Bill in its earlier avtar had proposed that the National Bank for Agriculture and Rural Development (NABARD) will be the regulator of the sector. Such entities will no longer be under the purview of laws enacted by state governments such as the recent Andhra Pradesh Act. The government had introduced the Micro Financial Sector Bill in March 2007 in the Lok Sabha. However, the Bill lapsed as the term of 14 Lok Sabha expired in 2009. The latest draft Bill proposes that a micro finance institution has to be registered with the Reserve Bank with the minimum net owned fund of Rs 5 lakh. Besides, a Micro Finance Development Council will be set up to advise the government on formulation of policies, schemes and other measures required in the interest of orderly growth and development of the sector and micro finance institutions, to promote financial inclusion. The council will comprise of members not below the rank of Executive Director from NABARD, National Housing Bank, RBI and SIDBI. Besides, Joint Secretaries from Ministry of Finance and the Ministry of Rural Development will also be members. It also proposes that any micro finance institution which is not a company registered under the Companies Act, 1956 and which becomes systemically important micro finance institution shall convert its institution into a company registered under the Companies Act, 1956 with or without a licence under section 25 of the Companies Act, 1956. The RBI may pass an order directing micro finance institution to cease and desist from continuing the micro finance activities if it is found acting in manner prejudicial to the interest of its clients or depositors.

Free Press Journal  

Loan 'mela' to be held

PATNA: The Bihar Awami Co-operative Bank Limited would be organizing a loan disbursement `mela' here at its Raja Bazar Branch near Shiv Mandir at Khajepura on July 7. Bank GM Tanweer Ahmad said that the loan would be granted under financial inclusion programme with women members of downtrodden class being given Rs 15,000 each at 15 per cent annual interest at no collateral security to make them self-dependent and develop leadership quality in them. The Deputy General Manager, RBI, Patna, will give away the loan amount to the beneficiaries. 

TOI

Forecasting GDP numbers "very dicey", says Basu

With an adverse global scenario looming over the Indian economy,  projecting GDP numbers for  the current would be "very dicey", Chief Economic Adviser in the Finance Ministry Kaushik Basu said today. Basu said that while his team of researchers was yet to revalue the growth prospects, "some scenario from the global projections is what makes it very dicey." The government had pegged GDP growth around nine per cent in the Budget for 2011-12. However, the Reserve Bank later lowered the growth projections to 8 per cent, lower than the 8.5 per cent recorded in the previous fiscal in the midst of high inflation. Its priority is to tame inflation even if the growth has to be sacrificed. Basu said, "I have been doing some exercise... My group of researchers are taking stock of what could be legitimate forecast." The hard interest rate regime of RBI had seen the industrial production growing by 6.3 per cent in April 2011 compared to an over 16 per cent growth in the year-ago period, prompting analysts to say that probably economy is slowing down. Earlier this week Finance Minister Pranab Mukherjee said that the government has yet not taken any decision on revising the economic growth projections for 2011-12. Continuing debt woes in Europe and spiralling inflation in many developing markets, including China, are posing a serious threat to the global economic recovery. Against the backdrop of unrest in the Middle East, the prices of crude and commodities are also rising. 

Statistics Day Conference - July 5, 2011




The RBI Governor, Dr D. Subbarao, along with the Deputy Governor, Dr Subir Gokarn; Professor Sastry Pantula and Professor Rajeeva Karandikar at the 5th Statistics Day Conference at the RBI headquarters in Mumbai on Tuesday

 

The Reserve Bank of India organised the 5th Statistics Day Conference on July 5, 2011. Statistics Day marks the birth anniversary of Prof. P.C. Mahalanobis, the legendary statistician who contributed enormously on the development of statistics and statistical infrastructure in the country. On this occasion, distinguished statisticians viz., Prof. Sastry G. Pantula and Prof. Rajeeva L. Karandikar spoke on topics relevant to statistical analysis in central banks such as time series and financial statistics. Recounting the value of immense contributions of Prof. P. C. Mahalanobis in Statistics, Dr. D. Subbarao, Governor, Reserve Bank of India in his inaugural address highlighted the relevance and importance of statistics and statistical analysis to support policy formulation. He emphasised that policy calibration, be it monetary policy, regulatory actions or decisions in pursuit of financial stability, is improved by the quality of data at our command and our ability to analyse and interpret that data.;Citing an example of the new series of index of industrial production (IIP), Governor indicated that while the new series is consistent with the other related indicators, the old series was contrary to the underlying trend of the deceleration after the global financial crisis. The new series also shows that there has not been an industrial slowdown in the second half of 2010-11, contrary to the indication of the old series. Referring to the interpretation of inflation data, Governor indicated that WPI has been opted as a second best choice in absence of a single CPI representing the whole country. Further referring to RBI’s preference for non-food manufactured product inflation as an indicator of demand side pressure, Governor indicated that core inflation is a derived measure from the headline inflation which is designed to capture the persistence component of inflation and amenable to policy. While it is true that commodity prices influence the non-food manufactured products component of WPI, it is also true that the pass-through from higher commodity prices to WPI depends critically upon the underlying demand conditions in the economy. In this context, Governor welcomed the compilation of new CPI (rural and urban). However, there is a need for a longer time-series data for making them suitable for policy purposes. Drawing upon the basic principle that drove Prof. Mahalanobis in his use of data and statistical analysis, Dr. Subir Gokarn, Deputy Governor emphasised the need for understanding of the various actors at play and various inter-relationships between them for effective decision-making. In the context of policy challenges and analytical complexities faced by the Reserve Bank, he highlighted the need for understanding the structural breaks for better assessment of the ever evolving economy. He also highlighted the merits of triangulation i.e. approaching a problem from three different dimensions that allows one to draw a boundary around the set of reasonably accurate assessments of the situation, which then make the leap to the policy decision manageable. The first of these is the data from household surveys that are conducted regularly providing inputs to the forward looking decision-making process. The second side relates to the understanding of the business cycle indicators from the company surveys. The third side of the triangle is an extensive consultation process, with banks and other financial institutions, manufacturing and service companies, various industry associations and professional economists. Thus, effective triangulation represents an efficient alignment of three different dimensions of data and decision-making. While welcoming the participants, Shri Deepak Mohanty, Executive Director briefly discussed the role and responsibilities of the statisticians in Reserve Bank of India. He stressed the need for timely and accurate data, dissemination of data on real time basis, maintaining global standards, need for a quarterly policy model using DSGE framework, assessment of asset prices, data on employment and surveys for the assessment of the Reserve Bank’s financial inclusion initiatives. Prof. Pantula, in his keynote address, emphasised the value of time-series modeling for central banks. However, he cautioned at the lack of understanding the true data generating process and application of alternative testing models consistent with the underlying economic dynamics. Prof. Karandikar emphasised the limitations of using Gaussian model for the bulk of the financial risk solutions. While the tail of the distribution could be suitably captured by alternative modeling techniques, forecasting of black swan event like the recent financial meltdown is not practically possible. Based on the theme, the conference had technical sessions on time series analysis and financial statistics where internal research papers highlighting various aspects like growth inflation nexus, financial conditions index, credit risk modeling, and portfolio selection were presented.

6th TAFCUB Meeting held at RBI Jammu

The sixth Meeting of the State Level Task Force on Urban Co-operative Banks (TAFCUB) was held at RBI Jammu office under the Chairmanship of Arnab Roy, Regional Director for Jammu & Kashmir (Chairman of TAFCUB). The meeting was attended by Co-Chairman M. Abbas, Registrar, Co-operative Societies, Jammu & Kashmir, Subhash Gupta, Chief Executive, NAFCUB, New Delhi and H.S. Khitaulia, Deputy General Manager, UBD, RBI, Jammu . Chief Executive Officers of Citizen Cooperative Bank Ltd. Jammu, Urban Co-operative Bank Ltd. Anantnag and Kashmir Mercantile Co-operative Bank Ltd., Sopore also attended the meeting.  The meeting reviewed the performance of the Urban Co-operative Banks in the Urban Banking Sector in the State of Jammu and Kashmir. Opening of new branches by Devika Urban Cooperative Bank Ltd. Udhampur, Urban Cooperative Bank Ltd. Anantnag and Kashmir Mercantile Bank Ltd., Sopore, imparting training to the staff of UCBs by RBI, installation of Core Banking System in all the four Urban Cooperative Banks, elections in Citizens Cooperative Bank Ltd, Jammu and DUCBL, Udhampur along with latest policy developments were the major issues discussed in the meeting.

http://www.earlytimes.in/earlytimes1/newsdet.aspx?q=75957

Striving to Regain Lost Glory

When M.V.Tanksale took charge at Central Bank of India, he made it clear to the top management that he wants to restore the premium position that the bank held in the past. Central Bank, which was the second leading public sector bank for almost 25 years post nationalisation, lost its ground to its peers due to poor people management, says industry expert. The veteran banker now faces the challenging task of steering a bank where employee morale is low. In the past few years, the bank has fallen behind its peers such as Punjab National Bank, Union Bank of India and Bank of Baroda. It has also lost its status of a category A bank, which is granted by the government on the basis of total business. Central Bank has not been able to keep up with the pace of growth of some of its peers. For instance, between 2007 and 2011, Bank of Baroda reported a 313% growth in net profit, Union Bank of India’s net profit rose 215% and UCO Bank’s net was up 186%. But during the same period, Central Bank posted a 151% rise in net profit. Mr Tanksale has sent across the message that he would strive to move the bank up the ladder and get it back into the pack of five top banks in the country.  Described as a prudent leader and motivator, Mr Tanksale will have to play a key role in lifting the drooping employee morale at Central Bank, say officials from the bank.  “This bank needs someone with exceptionally good leadership quality because people management is the biggest issue here,” said a retired banker from Central Bank.  

Prior to this appointment, Mr Tanksale was Executive Director at Punjab National Bank, where he worked briefly under K.C.Chakrabarty, who is described as a tough task master. After Mr Chakrabarty moved to the Reserve Bank of India as one of the Deputy Governors, Mr Tanksale held charge of PNB for about four months before appointment of the new chairman. Affable and soft-spoken, Mr Tanksale started his career with Union Bank of India where he eventually rose to the top post. He also led the marketing team at Union Bank. He spearheaded the launch of the transaction banking division that offered a wide range of products and services to customers on a technology based platform. Mr Tanksale is described by former colleagues as a knowledgeable person and an expert in resolving problems. He is said to be experienced in the ground realities of lending and mobilising deposits having spent a major part of his career in branch offices rather than in corporate head office.  His educational background is no less impressive. He holds a bachelors degree in sciences, masters in humanities, is a qualified cost accountant and has done company secretariatship. Mr Tanksale now has the onus of taking some bold strategic decisions to drive the bank that has a strong presence in the most lucrative western region of the country where it has more than 3,000 branches. His leadership qualities will play a crucial role in the days ahead, said Central Bank officials. But with slightly over two years in hand, Mr Tanksale will have to move fast to help the lender get back it glory days.

ET

Subbarao Notes Problems With India Inflation Indicators

MUMBAI – India's central bank Governor Tuesday said a representative consumer price index could better indicate inflationary pressures, underscoring yet again the Reserve Bank's reluctance to rely on the wholesale price index, the main price gauge in an economy with a skewed income distribution.  "It is not entirely erroneous conceptually, the consumer price index is a better indicator of demand-side pressure than the wholesale price index...but there is no single representative consumer price index for the whole country," Duvvuri Subbarao said.  The world's second-fastest growing major economy bases its inflation estimate on the wholesale price index, unlike other major economies, which use the consumer price index. The country's wholesale price index has 555 items and was updated last year to the base year of 2004-05.  In the past year, however, the Reserve Bank of India had to revise its inflation forecast three times as its projections fell below the actual outcome.  "Systematic under-prediction of inflation numbers by the Reserve Bank of India last year is a cause of concern...the provisional numbers which are significantly off mark can impact policy decisions," Mr. Subbarao said.  The RBI now expects inflation to remain at an elevated level in the first half of the fiscal year before gradually moderating to 6% by March 2012.  Mr. Subbarao said the under-projection of inflation was due to a larger-than-expected increase in global crude oil prices and other commodities and a smaller-than-expected decline in food prices despite a normal monsoon. The volatile index of industrial production, or IIP, data also erroneously suggested a moderation in growth and demand, he said, adding that it was important for policy purposes to understand the cause of the volatility.  The IIP last month had its base year updated to 2004-05 from 1993-94, which corrected an anomaly in the statistical system. However, it still suffers from volatility.  "Volatility is larger in the capital goods sector. This again is bewildering and worrying," Mr. Subbarao said.  Speaking at the same event, Deputy Governor Subir Gokarn said the RBI is trying to ensure the monetary policy measures it takes to cool persistent inflation are the best ones in the given macroeconomic situation.  He said the RBI is now attaching increasing importance to corporate data points in the formulation of its policy. The RBI has increased interest rates 10 times since March 2010 to rein in price pressures

WSJ

RBI handicapped by unreliable data, says Subbarao

RBI Governor today questioned the reliability of the government's inflation and industrial output data. D Subbarao warned that the flawed data could potentially mislead policy calculations.  "We in the RBI have been handicapped by the reliability or lack of it or some of the basic data that we need to use for policy calculation, in particular, the data we get on unemployment and wages do not inspire confidence as regards to quality," he pointed out.

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CPI a better indicator of inflation than WPI: Subbarao

Reserve Bank Governor D Subbarao today said consumer price index (CPI) works better than wholesale price index (WPI) in capturing market dynamics and arriving at a more realistic inflation forecast. "Conceptually, the CPI is a better indicator of demand side pressures than the WPI and there is no denying that consumer prices better reflect demand side pressures than wholesale prices," Subbarao said at the RBI's 5th Statistical day celebrations at the Mint Road office.  The Governor said a sustained rise in wholesale prices either results in an eventual increase in prices by retailers or a squeeze in their margins. But if the demand is strong, retailers may exercise pricing power and pass on the increase in wholesale prices to consumers. In case demand is weak, retailers will be forced to partly absorb the increase in wholesale prices in their margins, he said. However, defending the WPI usage in the apex bank's inflation forecast, Subbarao said, "Given the limited efficacy of monetary policy to deal with food and fuel inflation, and the limits on using core CPI inflation measures, we have focussed our attention on non-food manufactured products inflation as an indicator of demand-side pressures in the economy." He admitted that there was some merit in the criticism of RBI's inflation forecasts, which has been going off the mark, but pointed out that the bank has "opted for WPI over CPI as a second best choice for a number of reasons, first and most importantly, we do not have a single CPI that is representative of the whole country. "Until recently we had four, and currently we have three CPIs representing different segments of the population," he said, pointing out that while WPI is computed on an all-India basis, while CPIs are constructed for specific centres and then aggregated to an all-India index. "Secondly, WPI is available with a shorter lag than the CPIs. Third, WPI has a broader coverage than the CPIs in terms of the number of commodities, quotations, inclusion of non -agricultural products and tradeable items," he said.

BS

Data revisions can mislead policymaking: RBI

India's central bank chief on Tuesday voiced concern about sharp revisions in macroeconomic data, including growth and inflation figures, which can disrupt calculations when setting policy.  The Reserve Bank of India (RBI) has raised interest rates 10 times since March 2010 to control inflation that has consistently outrun its forecasts. India's most widely watched monthly inflation yardstick, the Wholesale Price Index (WPI), has been revised upward, sometimes sharply, in recent months. Many economists expect an upward revision of 30 to 40 basis points to the provisional 9.06% figure for May. "Each time when we have to make an assessment of inflation situation, we are left to double guess how the provisional numbers may be revised upwards," RBI Governor Duvvuri Subbarao said in a speech. The Index of Industrial Production (IIP) is also prone to sharp revisions. "When we were making policy the IIP number available to us in February 2010 was 6.8 percent, whereas the economy was actually growing much faster," he said. "Provisional numbers which are off mark by significant margin can mislead policy calculation," he said. Subbarao added that such revisions were also factors behind the central bank making inflation projections that proved to be below the actual number in the last fiscal year. "Last year RBI's inflation projections were systematically below the actual outcome," Subbarao said. Factors that led to the miscalculation included higher-than-expected gains in oil and other global commodity prices and a lower than expected decline in food prices despite a normal monsoon, he said. He also cited "erroneous signals from the then-available IIP data which suggested moderation in growth and demand," as well as "larger than usual upward revision to the past inflation data." The RBI had initially projected inflation to be at 5.5% by end of March 2011 but subsequently revised it upwards to 7% and then later to 8%.  Ultimately, March-end inflation was revised upwards in June to 9.68% from 8.98% in April. Generally, private inflation forecasts were much closer to what was ultimately reported for the last fiscal year. The March IIP number was revised to 7.8% in June from 7.3% released in May, while a sharper revision was seen for December IIP, which was upwardly revised to 2.5% from an initial reading of 1.6%. Analysts have often expressed their discomfort over such sharp revisions. "Large systematic revisions for nearly six months in WPI shows there is a need to revisit the methodology of compiling it," said Siddhartha Sanyal, chief India economist at Barclays Capital. "Central banks now are trying to come out with swift policy response. But if there are such sharp revisions, then either the central bank will have to guess the revision amount while taking a policy response or have to revisit the policy response after the final numbers are out," Sanyal said. Some economic data that is widely used elsewhere, such as on retail sales, employment and housing, is not regularly compiled in India, adding to the challenge of policy making in Asia's third-largest economy. Subbarao also said that though there was merit in using the consumer price index (CPI) as a yardstick for inflation -- as is the practice in most economies -- there is no single representative CPI measure for the whole country. "There is merit in this criticism. It is not entirely erroneous. Conceptually CPI is a better indication of demand side pressure than WPI," Subbarao said.

Moneycontrol

'Increase in interest rates may hit growth'

The raising interest rates leads to to increase in cost of capital is a matter of concern for the industry. Any further price increase by the Reserve Bank of India (RBI) will hurt the industry growth, said B Muthuraman, president, Confederation of Indian Industry (CII) and vice chairman, Tata Steel Ltd. In an interaction with reporters at the sidelines of CII National Council Meeting in Chennai today, Muthuraman said major issues for the industry today are land acquisitions, cost of capital and commodity price. “Cost of capital needs to be moderated. Because of interest rate already slow down started in the industry. In the last 15 months, interest rates went up by 10 times. Any further increase by RBI will stuck the growth and will hurt the industry.” He noted already gross capital formation growth was only 0.5 per cent last quarter compared to 24 per cent growth in the first quarter of last year. FDI flow dropped to $27 billion in the last fiscal from $38 billion in 2009-10, a drop of around 28 per cent. Credit growth, especially to infrastructure sector, including petrochemical, iron and steel, cement, power, roads sand others, is not good. “Private consumption has started slowing down”. Commenting about country's GDP growth, he said from the World's perspective India's GDP growth of 8-.8.5 per cent is a good number, but ideally we must growth by 9.5-10 per cent, looking at domestic challenges. For which, supply side needs to be addressed, agriculture productivity need to be increased, money should be available for private sectors to increase investments into core sector, Government's diversification programme is not happening as per schedule and it has to be put on the fast track, land acquisitions stagnating the industry and reforms need to be speed up. On the reforms for example GST implementation has to be on the speed track. Muthuraman said, GST alone can increase country's GDP by 1-1.5 per cent.

BS  

Banks get 6 months to comply with MF investment limits

Banks with investments in excess of 10 per cent of their net worth in liquid and short-term debt schemes will get six months to bring exposure in line with the ceiling. The Reserve Bank of India (RBI) has capped exposure to these schemes at 10 per cent of net worth. RBI said the total investment in liquid or short-term debt schemes with weighted average maturity of portfolio of not more than one year would be capped at 10 per cent of net worth as on March 31 of the previous year. According to analysts, 10 per cent of the combined net worth of all banks would come to Rs 50,000-55,000 crore. RBI, in its monetary policy for 2011-12, had flagged the risks arising from huge exposure to such short-term schemes. The regulator had indicated that bank investments in mutual funds would be capped at 10 per cent of net worth. Bank investments in mutual funds has come down by 30 per cent since May. Banks’ investments in liquid schemes of mutual funds had grown manifold. The liquid schemes continue to rely heavily on institutional investors, such as commercial banks, whose redemption requirements are likely to be large and simultaneous. On the other hand, mutual funds are large lenders in the overnight markets, such as collateralised borrowing and lending obligation and market repo, where banks are large borrowers. The various mutual fund schemes also invest heavily in certificates of deposit of banks. Such circular flow of funds between banks and mutual funds could lead to systemic risk in times of liquidity crunch. Banks could potentially face a large liquidity risk. It was, therefore, felt prudent to place certain limits on banks’ investments in liquid or short-term debt schemes of mutual funds, RBI said.

BS  

Is high inflation the new normal? probes RBI's Gokarn

Reserve Bank Deputy Governor Subir Gokarn today said the central bank is debating whether the prevailing higher inflation is the "new normal." "There is a public debate on whether the prevailing high inflation is the new normal figure for price rise," he told the RBI's 5th Statistical Day celebrations here. However, Gokarn, who oversees inflation management at the Mint Road office, stopped short of revealing whether the monetary authority subscribes to this view or not. But it can be noted that during the annual policy announcement, RBI had made it amply clear that its core focus would be to batten down high inflation even at the cost of sacrificing growth, and had pegged the annual inflation target for this fiscal at 6%. RBI had initially forecast an annual inflation at 5.5% by March 2011, but subsequently was forced to revise it upwards to a high 7% and then to 8% and finally when the fiscal year ended, it was at a much elevated level of 8.98%, which was ironically revised further upwards to 9.68% in June. Such wild variations in its inflation target had invited criticism from many quarters. Noting that changes in consumption patterns are affecting food inflation, Gokarn, however, said statistics has not yet proved empirically that there is a fundamental change in the food demand pattern. Stating that more accurate analysis and decision making are needed to better manage the monetary policy decisions, he said the structural break-ups in the data, such as on inflation, factory output numbers and jobs are posing challenges to this.

Moneycontrol 

RBI issues warning against fake company

Hyderabad : The Reserve Bank of India has clarified that no company/entity named Forex Achievements is registered as a company under the Companies Act, 1956, a pre-requisite for obtaining a Certificate of Registration (CoR). The CoR dated April 7, 2010, displayed by the entity on its Web site is fabricated and not issued by the RBI. Therefore, members of the public are cautioned not to deposit money with such unincorporated bodies. The RBI said it has come to its notice that some entity, which seems to be foreign is operating in India and doing Non-banking financial institution (NBFI) business, including acceptance of deposits, without obtaining a CoR. The company is misusing the name of RBI by displaying a fake CoR on its Web site for collection of deposits from the public. Persons depositing money with such unincorporated bodies would be doing so at their own risk, the RBI said in a press release. The public is hereby warned to be cautious in making investments with such entities. Before making investments, they are advised to visit the Web site of the Reserve Bank of India to check whether the companies they are placing deposits with are registered with the Reserve Bank and entitled to hold deposits. The names of such companies are available on RBI's web site at www.rbi.org.in.

Business Line

Easing the rules for NBFCs

The Reserve Bank of India's move to allow banks to buy loans from NBFCs — and treat the process as priority sector lending — represents a slight relaxation in the tight framework of regulations that now govern the non-banking financial sector. This will not only make the funding window for NBFCs a little more secure, it will also ......

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IOB to set up IT subsidiary to develop banking technology

Public sector Indian Overseas Bank (IOB) plans to set up an IT subsidiary by hands with an IT company to develop banking technology, a top bank executive said here today. IOB has appointed an IT consultant for selecting a partner for the bank in the joint venture, which would be in the nature of research and development, IOB Chairman and Managing Director M Narendra said. The bank now uses technology developed in-house for its major services and the plan was to build up more cost-effective banking technology, he said. IOB would also impart the new technology for other banks and also to financial institutions in developing countries for a price, he said, adding it would submit its proposal on the venture to RBI soon. The bank aimed to open 400 new branches across the country, mostly in semi-urban and rural areas, in the near future and also planned to expand its number of ATMs in the country to 3,000. At present, the bank has 1,152 ATMs including 346 offsite ATMs, he said. The business level of the bank touched Rs 2,71,160 crore as on June 30 last against a business turnover of Rs 2,59,000 crore registered in March 31, 2011, Narendra said. As part of its initiatives to improve services, the process of recruiting 1,000 probationary officers, 525 specialist officers and 1100 clerks was under way, Narendra said.

http://www.mydigitalfc.com/news/iob-set-it-subsidiary-develop-banking-technology-253

Project to get direct access to bank data to be ready in 2 yrs – K.C.CHAKRABARTY

The Reserve Bank of India (RBI) is busy fighting inflation, improving reporting standard for the banking industry and implementing the much needed financial inclusion plan to achieve inclusive growth. RBI Deputy Governor K.C.Chakrabarty in exclusive interview with FE’s Sitanshu Swain and Kumud Das outlines the action plan on these issues.

How do you see the growth versus inflation dilemma?

In every economy, if you want to have growth, your inflation has to be low. And if you have to control inflation, you have to, sometimes, sacrifice growth. But, the basic message should be very clear that unless there is low inflation, there cannot be high sustainable growth.

Do you think the ongoing act of rising rates by the banks will create NPAs in the industry?

If the interest is low, then the NPA will also be low. Only if the interest goes beyond a sustainable level, it creates problem. But rising rates may not always affect economic growth. Interest rates account for only 6% expenses by a corporate. If they can reduce certain costs, they can take care of the rising rates. Or, if I can pass on the cost to the end users, then too one can take care of rising rates. But then, beyond a particular stage, you can’t pass it on. And, when the rates are high, then it means economy has some problem. So, everybody suffers.

What can sector banks do to more closely monitor NPAs?

Banks should keep a watch on all the sectors, especially when they feel that there is some problem in the economy. If some sector specific information lead is there, then from there they will find out that what are the other sectors are to be looked at.

But when banks are monitoring the health of credit flow, they can find out the problem. If they find some segments are having more stress, they should pay more attention to that. My advice to banks is to see that all the accounts, including good ones, are monitored.

How do you see the problem of high rates affecting the credit flow to needy sectors like SMEs and infrastructure?

There is no problem in the flow of credit to these sectors. But in a society, poor shouldn’t subsidise the rich. If the rates are going up, the poor people are not getting compensated. What is happening is that the rich is paying low rates while the poor is forced to pay more. This needs to be corrected. It is our job as a regulator to ensure this. The banks are free to devise schemes for these needy sectors.

Bank have a vested interest in the balanced development of a society. If the society develops, they will get more business. We can only advise them. The credit flow to the SME sector has not suffered so far. If the banks are not able to manage their own infrastructure and keep the cost down, they are free to charge more. Introduction of more innovative technology will help them control their cost.

You recently remarked that banks are not providing authentic data. Wouldn’t suppressing data amount to fraud?

Banks across the sector are not reporting authentic data. We can standardise in case of non-financial reporting. If that happens, financial reporting will get stabilised. But, the problem is that violations happen when the incumbent changes. Whenever a new branch manager takes over charge, he says NPAs are high. What I expect from banks is to be accurate on four basic characteristics, which may include unbiased, consistent, efficient and sufficient. I do agree that the last two may be difficult for the banks to achieve, but there is always a scope for improvement on the first two counts. We are in dialogue with banks, accounting professionals, management and we are improving our supervision system.

RBI has grand plans to connect to banks’ management information system (MIS) directly. What is the status of the venture?

We are trying to improve the current system of seeking data from the banks, though I don’t have an instrument to measure it. We are trying to have a system in which we can directly get the data from a particular bank to our own data centre. But the problem is that only transactional data will come to us. Hopefully, the project will take two years’ time to complete.

FE

The BoP crisis

I am glad that “PM's focus needs to change”, (Business Line, July 4) mentioned Shri S. Venkitaramanan among the names of the officials who helped the Finance Minister, Dr Manmohan Singh, resolve the balance of payments crisis two decades ago. For some inexplicable reason his name is systematically excluded in all the other writings on the subject. Yet the nation needs to recognise the crucial decision he took, inter alia, to mortgage the RBI's gold to the Bank of England and Bank of Japan to raise funds and avert an impending loan default. Caught in the politics of the minority government of Chandra Shekhar, North Block was taking a laid-back attitude and leaving matters to the RBI.

Shri Venkitaramanan was instrumental in ushering in crucial reforms in exchange control and removing the ban on gold imports to cut at the roots of hawala transactions.  He appointed a confidential committee (not publicly announced) comprising P. B. Kulkarni, O. P. Sodhani and the undersigned to formulate a new exchange rate regime.

The result was the Liberalised Exchange Rate Management System (LERMS) that was incorporated (without acknowledgement of the source) in the Report of the Committee on Balance of Payments and implemented successfully. I hope those who are writing Volume Four of the History of the Reserve Bank of India will highlight his role as a policy-maker during those difficult times.

A. Seshan, Mumbai (Business Line)

Banks asked to bring 532 Himachal villages in financial inclusion net

Shimla: Bankers under financial exclusion plan have been asked to extend banking services to 532 villages in the state that have a population of over 1000 persons. Impressing upon banks to bring these villages under the ambit of financial inclusion, chief secretary Rajwant Sandhu at a state level bankers committee meeting said that the central government had formulated a new scheme, National Rural Livelihood Mission (NRLM) for rural development which was expected to be implemented from 2012. With an credit deployment target of Rs. 7547 crores for 2011-12 Annual Credit Plan (ACP) 2011-12, she said that the highest allocation of Rs. 2479 crores had been made for agriculture. She added that 12% of plan resources was being allocated to agriculture sector for boosting income of farmers. The state government had initiated several measures like crop diversification project with assistance of Japan International Corporation Agency, Soil Health Management, Organic Farming by setting up of 3.50 lakh vermin-compost units in the State benefitting 21000 farmers so far. Farmers of the state were benefited by launching of innovative schemes like ‘Bhed Palak Samridhi Yojna’, ‘Pandit Deen Dyal Kisan Bhagwan Samridhi Yojna’ and Doodh Ganga Venture Capital Scheme’, she added. In Solan and Sirmaur districts 225 villages had been covered under Pradhanmantri Adarsh Yojna under which a Central assistance of Rs 10 lakhs was being allocated for infrastructural improvement, said Sandhu. She also urged banks to implement Social Security Pension Payment Distribution to the beneficiaries at their door steps through the Business Correspondents Model (BCs) by March, 2012. Last year the banks had disbursed R. 6912 crores to 3.02 lacs new units in the state with highest Rs 1641 crore made to the medium and small enterprise. Executive director UCO Bank, Ajai Kumar, who presided over the meeting, disclosed that there were 1489 bank branches in the state of which 1213 (80%) were in rural areas. Kumar asked banks to install more ATMs as there were on 471 ATMs in the state which according to 2011 census has a population of more than 6.8 million. Senior government officials which included Deepak Sanan, Sushil Negi, Ram Subhag Singh, Chief General Manager NABARD Naresh Gupta, RBI General Manager R Gurumurthy and others attended the meeting.

My Himachal

Banks see no slowing in loans

“If RBI is projecting a growth rate of 18-20%, we will grow at 20-22%. We see all-round growth in all sectors and expect corporate loans to grow at 20%. We are not changing our forecast,”....

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FM: Yet to decide on scaling down growth projections

RBI had also said pricing power remained intact with corporate despite rising input costs. The central bank pegged economic growth to 8 per cent this financial year, while the World Bank.....

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SC appoints SIT headed by judge to probe black money, Hasan Ali

The SIT comprising Union revenue secretary, Deputy Governor of RBI and heads of CBI, Enforcement Directorate, Central Board for Direct Taxes, Narcotics Control Bureau, Revenue Intelligence, and Research and Analysis Wing (RAW) will conduct probe and launch both.......

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Firms can refinance foreign debt without RBI approval

The Reserve Bank of India said on Monday companies can refinance their overseas borrowing without seeking any specific approval from the bank. The ruling enables companies with outstanding debt to raise funds via fresh external commercial borrowings and foreign currency convertible bonds (FCCBs). Restructuring of FCCBs involving change in the existing conversion price is not permissible, the Reserve Bank of India said. "Keeping in view the need to provide a window to facilitate refinancing of FCCBs by the Indian companies who may be facing difficulty in meeting the redemption obligations, the Reserve Bank, in consultation with the Government of India, has decided to allow the Indian companies to refinance/ restructure the outstanding FCCBs issued by them," the central bank said.

Moneycontrol

RBI fines Citibank Rs 2.5m

MUMBAI: Reserve Bank of India on Monday said it has fined Citibank Rs 2.5 million for violating know-your-customer (KYC) guidelines.  "The failure in following the KYC/AML (Anti-Money Laundering) guidelines while opening accounts led to the perpetration of a fraud at its Gurgaon branch," the Reserve Bank of India (RBI) said.  Late last year, the company said it was investigating a set of suspicious transactions based on what it said were forged documents by an employee at a branch in India.

TOI

AI to seek norms waiver from RBI

Bleeding national carrier Air India is planning to approach the Reserve Bank of India (RBI) for a special waiver of its provisioning norms. AI has defaulted on payment of service tax and interest on working capital, and owes around Rs 48,000 crore in loans and payments to vendors.  Its loans would become non-performing assets (NPAs) as per RBI provisioning norms, if the interest liability or the repayment of loan is not made by July-end. Documents accessed by Hindustan Times reveal that the airline will approach RBI once the business plan prepared by SBI Caps is cleared by lenders.  The airline would also approach the finance ministry for a suitable commitment on equity support as well as comfort letter which the lenders may seek. Banks have already stopped lending to AI and in the event of a default government guarantees would be triggered affecting the credibility of the sovereign. The cross default clause would also apply thereby invoking the guarantee under various aircraft loans. If AI's loans become NPAs, banks may sell off the assets that it had pledged to secure loans and freeze its accounts, which would bring operations to a halt. The restructuring is likely to bring an interest relief of Rs 600 crore by way of reduction in interest cost on working capital as well as ease the liquidity position. Refinancing of certain long term loans would provide interest relief of Rs 280 crore.

Hindustan Times

Savings bank rate

There have been innumerable comments on deregulation of the savings bank interest rate ever since the RBI announced it.  All banks are under the common opinion that their cost of deposits will increase with the deregulation of the SB rate. Linkage of inflation to the interest rate on deposits is not at all realistic as inflation will be always on higher side. The expectation of a real rate of return on the savings bank rate of interest is also not correct. Generally, savings bank accounts are maintained for the purpose of day-to-day expenditure and urgent needs.  Very few people use the funds in such accounts for investment purposes as there are plenty of investment sources other than the Savings Banks deposits maintained by banks.  Hence, the bankers' argument that the cost of deposits will increase if deregulation of the SB rate is allowed is also not fully correct. Even if they do, this can be offset with the increase in minimum balances and transaction costs. It is true that the overall cost of deposits will fall with the low-cost and no-cost funds, as they are called in CASA. Even after deregulation of SB rates there will be no notable effect on cost of funds as no bank will dare to increase the rate to 9 per cent from the present 4 per cent. Hence, the RBI should proceed with deregulation of savings bank rates to facilitate the poor and middle-class people whose savings accounts are used for their short-term needs.

T.S.N.Rao, Branch Manager, Indian Bank, Palakol  (Business Line)

Any further hike in interest rate will kill industry: CII

RBI's move would only affect the demand which would further lead to decrease in flow of investments into the country. "If India has to grow like other countries, then demand has to increase and because of that investment will also increase......

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Retro RBI is not only living abroad, but in 70s

D. Subbarao throws at western bankers, this brutal advice is being followed to a degree that has choked investment (and consequently job creation) in Indian corporates. Even Subbarao knows that high interest rates make no dent on an inflation....

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Our financial sector remains stable

The approach adopted by Reserve Bank of India ( RBI) to maintain financial stability is multi- pronged; maintenance of overall macroeconomic balance through monetary policy; improvement in the macro- prudential functioning of institutions and markets; and strengthening of micro- prudential institutional soundness through regulation and supervision. RBI implemented in the 1990s financial sector reforms in a prudent .......

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Rising interest rate not a deterrent for home buyers: Acharya

Quoting Y. V. Reddy, former Governor of the Reserve Bank of India, he said the interest rate “cannot remain perennially at the current level”. He said he fully agreed with Mr. Reddy who had suggested that past increases in interest rate had not been fully transmitted to the economy.........

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Shri G.Padmanabhan takes over as Executive Director

The Committee of Governor and Deputy Governors has decided to promote  Shri G. Padmanabhan, Chief General Manager, Department of Payment & Settlement as Executive Director in the Bank with effect from July 04, 2011.

Mr. G. Padmanabhan, is a Senior executive in the Reserve Bank of India, with nearly 30 years experience in various capacities in the Bank. He is a post graduate in Economics (First Class- First) from the University of Kerala and an MBA (International Banking and Finance) from the Birmingham University, UK. Areas of work experience include bank regulation and supervision, regulation and supervision of the foreign exchange market in India as also regulation and supervision of the government securities markets. He has also been the head of the Regional Office of the Reserve Bank at Hyderabad. With his exposure to Information Technology implementation within the Reserve Bank culminated in the setting up of ‘state-of-the-art’ Data Centres. Since March 2005, he is heading the Department of Payment & Settlement Systems in the Bank. The new initiatives taken recently under his leadership include the transparency in service charges for the various payment systems like RTGS / NEFT, cheques, ATM charges, etc. Guidelines on mobile banking, issuance of prepaid payment instruments, and for intermediaries have been issued to ensure orderly development of these payment systems. He has been a panel member at many of the Seminars on market issues organized in India and a regular guest speaker at many of the training colleges run by the Reserve Bank/ Commercial Banks. He was a member of the team from the Reserve Bank of India that visited Bank Negara, Malaysia, following the Asian Crisis at their invitation to have consultation on modalities on the merits various exchange controls to tackle the crisis.  He has also visited Monetary Authority of Singapore, Monetary Authority of Hongkong, Bundesbank for discussing various Central banking issues. He has presented a paper on Capital Account Convertibility- The Indian experience at a Seminar organized by the BIS and SAFE in Beijing in September 2002. He also made a presentation on India at SIBOS 2005 held at Copenhagen on the subject of “Developing economies-Transformation in action”.  He is the alternate Chairman for SWIFT in India. Shri Padmanabhan is a keen sportsman. He has represented his University and State in Tennis and continues to play the game even today.