Rural demand growth can push up inflation: D Subbarao

MUMBAI: Job creation will be one of the key challenges of the new reform policy , said RBI governor D Subbarao while releasing the India Development Report in Mumbai.  "Demographic dividends are not independent, we need to find jobs for the young population," said Subbarao. Though services has contributed 65% to India's GDP, the governor feels manufacturing and agriculture will have to be developed for job creation. According to the India Development Report, economic sustainability is in doubt because of issues like stagnation in agriculture, marginal growth in the manufacturing sector post the reforms and doubts about the sustainability of services-led growth in the context of weak linkage with the farm sector.  The advantage of the liberalisation should have ideally shifted towards agriculture. Though the leakage in NREGA has come down, it is still unclear whether trade is shifting towards rural areas. The governor also raised concerns that growth in rural demand can push inflation up.  He has also stressed upon RBI's need to focus on external factors for sustained growth momentum. Some of them include maintaining sustainable level of current account deficit, market-determined exchange rate and a calibrated approach to capital account convertibility and ample foreign reserves to buffer against uncertainties.

ET

Gradual approach to achieve full convertibility: RBI



(L to R) T C A Srinivasa Raghavan, Associate Editor, Hindu Business Line, D Subbarao, RBI Governor, S. Mahendra Dev, Chairman of the Commission for Agricultural and Vikas Chitre, Director, Indian Institute of Political Economy during the release of 'India Development Report 2011' at the RBI headquarters in Mumbai



Mumbai : The Reserve Bank of India (RBI) on Monday said the country would adopt a calibrated approach towards full capital account convertibility so that the macroeconomic stability was not affected. “India needs to adopt a calibrated approach to achieve full capital account convertibility,” RBI Governor D Subbarao said in a speech here. The Indian rupee is fully convertible on the current account but only partially convertible on the capital account, as the government wants to shield the economy from sudden outflows of foreign capital in the times of crisis. RBI had appointed a committee to chart out a road map for fuller capital account convertibility. The committee, headed by former RBI deputy governor S S Tarapore, had suggested a three-phased approach to making the rupee fully convertible. Subbarao also reiterated that RBI looked at market-determined exchange rates and its intervention in the foreign exchange market was only to limit volatility. India’s forex reserves were at $315.715 billion in the week ended July 1, according to RBI data. “We need to focus on the external sector, which means looking at a sustainable level of current account deficit and a market-determined exchange rate but an exchange rate managed by RBI such that there is no volatility and it doesn’t militate against macroeconomic stability.” India’s current account deficit stood at 2.6 per cent of gross domestic product in the financial year ended March 31.

BS

RBI favours manufacturing over services-led growth model

“We forget the most important thing-- demographic dividend is not inevitable. To reap the demographic dividend, we need to find jobs for the 150-200 million people who will be thrown out of the farm sector (in the near future.”

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NDCCB faces RBI strictures

..... RBI has issued directives under the Section 11 of the Banking Regulation Act, the cooperatives have to now attain a positive net worth within a specific deadline. This means the banks' own funds should be more than the losses, if any......

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Inflation must be brought down to 5%: Rangarajan

Hyderabad : It is important to bring down inflation to five per cent in the medium term, according to Dr C. Rangarajan, Chairman, Economic Advisory Council to the Prime Minister. Speaking on ‘Current economy and policy options' at the College of Defence Management here on Monday, he said: “We need to use all policy instruments to achieve this.” The Reserve Bank of India is likely to consider changes in the policy rates in its first quarter policy review slated for July 27.  Along with measures to increase supply of essential items, the monetary and fiscal policies have to be tightened, the economist said. Food inflation is expected to come down in the coming months due to monsoon, among other factors.  The economy has potential to grow in the range of 9-9.5 per cent during the 12{+t}{+h} Plan period while in the present year, it might clock a growth rate of 8-8.5 per cent. For achieving this, it is important to control inflation, maintain a ‘comfortable' current account deficit and take up fiscal consolidation, he said.  “There is a need to control expenditures, especially on the subsidies,” Dr Rangarajan said. Referring to the recent hike in diesel prices, he said the Government might have to ‘act again' on diesel prices, if there is any further hike in international crude oil prices. Later, while responding to questions from newspersons, Dr Rangarajan said: “Probably, the RBI would act (on the interest rates) if inflation persists at a higher level.” Inflation is , however, expected to come down to 6.5 per cent by March 2012, he added. Food inflation has already come down to 7.7 per cent, driven by decrease in cereal prices even though prices of fruits and vegetables continue to be on the higher side, he pointed out.

HBL 

Damodaran panel on customer services submits report to RBI

Mumbai: The Reserve Bank of India will soon unveil measures to revamp customer services in the banking industry. A committee, constituted by the RBI under the former Sebi chairman M Damodaran to prepare a report on the customer services, submitted its report to the central RBI on July 4. Speaking to FE Damodran confirmed the development. The source added that the report, which runs in more than 160 pages, was likely to be put in the public domain by the apex bank shortly. The committee was asked by the RBI to look into banking services rendered to retail and small customers, including pensioners. Also, the committee was asked to look into the system of grievance redressal mechanism prevalent in banks, its structure and efficacy and suggest measures for expeditious resolution of complaints. Earlier speaking to FE KC Chakrabarty, deputy governor, RBI had said, “Providing a good customer service is the job of the banks. If they don’t do so, customers will punish them. If need be, we will bring more competitors and we are working in that direction too by allowing more players. Customer laws have to be strengthened. My priority is to reach to people who are not getting any service at all,We are trying to create an ecosystem to make financial inclusion (FI) more robust.” The committee which was formed in June last year and was supposed to submit its report within a period of four months from its first meeting was expected to submit the final report in June. Some of the other members of the committee include Union Bank of India CMD MV Nair, former Indian Bank CMD MS Sundar Rajan, National Consumer Disputes Redressal Commission former member P Rajyalakshmi Rao, All India Bank Depositors’ Association secretary Ashok Rawat and the former Banking Codes & Standards Board of India chief executive officer, BM Mittal. Interestingly, the Karnataka high court had sought the committee report in connection to a public interest litigation PIL. The PIL was against the service charges by banks from its customers for not maintaining minimum balance in their bank accounts. Also, the PIL was against the interest being charged by the banks for the delay on the part of customers in the payment of credit card dues.

IE 

Banks refuse NATGRID client info

NEW DELHI: Banks have refused to share information related to customer details with the government's ambitious anti-terror National Intelligence Grid (NATGRID) citing violation of the confidentiality clause and the possibility of fraud. The proposal — that is key to tracking terror financing by NATGRID — has been rejected by banks unless a specific legislation is brought that would make it mandatory to share information. This is the first time that financial institutions have expressed concern publicly over sharing information with intelligence agencies. NATGRID is expected to link 21 data sources from 11 intelligence agencies to provide real time information to counter threats to India's internal security and combat terrorism.  The Reserve Bank of India (RBI), in response to an RTI query, said, "Banks opined that such sharing of information may not be possible given the extant customer confidentiality clause and the possibility of frauds. However, in case any specific legislation for providing the information is passed, banks would comply with provisions."  RTI activist Venkatesh Nayak had sought information on the interface between NATGRID and financial institutions and decisions taken from RBI. NATGRID has been categorized as an intelligence and security agency and exempted from disclosure of information under the RTI Act.  The RBI also said there were two meetings between banks and NATGRID in 2010. The meetings held on October 1 and December 22, included public and private sector banks, foreign banks and money transfer agencies. RBI said it had informed bankers about the government's request for information on customer name, address and account number which was turned down.  NATGRID was envisaged after the Mumbai terror attacks as a system that would provide integrated information sharing. Despite concerns about security preparedness, there has been little headway with ministries including finance, defence and home caught in a turf war. The project actually received clearance for setting up of infrastructure only in May this year. The Cabinet Committee on Security cleared Rs 1,200 crore to establish a minimum infrastructure in the next 18 months.  There has been widespread concern over the use of data that will be accessible to intelligence agencies. Nayak said the issue was as much about security as about people's right to privacy. "It is not merely about securing data that is found on the computers of public and private sector and security agencies. It is also about the our right to know what data will be or has been collected about us, what uses such data will be put to and what measures have been laid down for each one of us to access our own personal data," he said.

TOI 

Poor performance of co-op banks worries Modi

PATNA: The Reserve Bank of India (RBI) has given license to conduct banking activities to just two of the 22 cooperative banks operating in the state and, therefore, the banking activities of the remaining 20 cooperative banks, if they have engaged themselves in such activities, would be in contravention of the RBI rules and banking norms.  This transpired at the recent review of the activities of the 22 cooperative banks operating in Bihar conducted by deputy CM Sushil Kumar Modi. The RBI representative present at the meeting informed Modi that only two cooperative banks had been issued license to conduct banking operations in the state.  The RBI representative also said applications of 12 other cooperative banks seeking to do banking activities were under review at the level of the country's central bank. If the 12 cooperative banks fulfilled the criteria required, then they would be issued license, the RBI representative said at the meeting. He added that the performance of seven of the 20 remaining cooperative banks was unsatisfactory and, therefore, they may not be issued license to conduct banking activities in the state. According to the RBI representative, the demand for license by the cooperative bank operating at Siwan was under process.  On the other hand, Modi also expressed unhappiness over the failure of the cooperative banks to provide enough number of Kisan Credit Cards (KCCs) to farmers. He said these banks have provided KCCs to only 42,571 farmers during the 2010-11 financial year against a revised target of 1.60 lakh.  Moreover, the agriculture loan given to farmers holding the KCCs was only Rs 85.95 crore. Modi, in the situation, told the chairmen of the 22 cooperative banks present at the review meeting to activate their respective cooperative banks to extend agriculture loan to farmers. He also told them to meet the target fixed regarding the issuance of KCCs to them in the current financial year for the benefit of farmers.  To streamline the activities of the cooperative banks in tune with the recommendations of the Baidyanathan Commission, Modi told them to appoint chief executive officers of their respective banks fulfilling the already defined criteria and selection process. The CEOs selected should have at least eight year service in banking services besides they must be below 55 years, Modi added.

TOI

RBI frown makes SBI shelve JV with Tata Motors Finance

...... State Bank of India (SBI) has put on the backburner its plan to acquire a stake in Tata Motors Finance, following the Reserve Bank of India’s (RBI’s) objection.......

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Nomura backs RBI rate increase transmission

The Reserve Bank of India’s (RBI) action in raising rates appears more effective now than in the past, as commercial banks continue to increase lending rates aggressively, amidst tight liquidity and rising cost of deposits. “The improved transmission was a result of the rate hikes being complemented by tight money market liquidity. This raised bank funding costs substantially, resulting in faster increase in lending rates,” said a note by Sonal Varma and Aman Mohunta, economists with Nomura Financial Advisory and Securities.  RBI had raised its repo rate, at which banks borrow from it, by 275 basis points to 7.5 per cent since March 2010. The rate is still 150 bps below its 2008 peak of nine per cent. In response, the country’s largest lender, State Bank of India, raised its benchmark prime lending rate (BPLR) by 225 bps to 14 per cent during this period. SBI’s current BPLR has also surpassed its 2008 peak of 13.75 per cent. Its base rate has also gone up 200 bps since it was first introduced in July 2010. The base rate is currently 9.5 per cent. ICICI Bank, the largest private sector lender, raised its prime lending rate and base rate by 200 bps each. The bank’s prime lending rate is currently 18.25 per cent, higher than its 2008 peak of 17.25 per cent. Its base rate is 9.5 per cent. “In our view, arguments that real repo rates are still negative in India overlook this important fact (of higher transmission),” Nomura economists said. According to them, the repo rate need not touch its past peak to have the desired impact on the banking system.

BS 

Hit by slow credit offtake and thin margins, banks will outsource 50% ATMs by 2015

....... About a couple of years ago, RBI allowed banks to expand their ATM network directly or through independent ATM deployers without its prior approval. While the transaction is free for the customer, there is a cost for the bank which owns the ATM. The transaction cost is recovered from the bank that has issued the card. Banks get into 5-7 years contract with ATM outsourcers and either pay a fixed monthly charge or fee based on the number of transactions. The outsourcing model also ensures a higher level of efficiency...............

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RBI penalises two Gujarat-based cooperative banks

MUMBAI: The Reserve Bank has imposed a penalty of up to Rs 1 lakh each on two Gujarat-based cooperative sector lenders -- Dahod Urban Co-operative Bank Limited and Pragati Sahakari Bank Limited -- for violation of its guidelines.  In case of Dagod Urban Co-operative Bank, the RBI has imposed the fine for giving donations beyond the permissible limit. It was also found violating the Know Your Customer (KYC) and Anti-Money Laundering guidelines.  In case of the Pragati Sahakari Bank Limited, the RBI imposed the fine on the cooperative bank for violation of cash transactions reporting norms.

ET 

Alert: Don't fall prey to sms fraud

................Reputed automobile companies such as BMW, Honda, Mercedes, fast moving consumer goods (FMCG) giants like Coke and Reebok, banks, the Reserve Bank of India (RBI) and the British Broadcasting Corporation (BBC) are some names fraudsters commonly use to con you. Giving out details like your name, address, mobile number and email address may seem fairly harmless. However, if in wrong hands, these can be used for notorious purposes..............

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Who’s accountable?

This refers to the article “Provisioning for credibility” (July 11) by K P Shashidharan. The author has expressed his dismay at the absence of collective wisdom in the pillars of corporate governance represented by various committees in banks. The truth is that these committees have succumbed to the pressures exerted by the dominant leadership. The Reserve Bank of India (RBI) or, for that matter, the government can create any number of pillars of corporate governance but that will not guarantee good governance.  It is common knowledge that most public sector bank managements indulge in window dressing to suit the tenure of their CEOs. But the question is that why has RBI remained a mute spectator?  If RBI, as claimed by the author, has stringent norms on corporate governance in banks, then it should accept the responsibility for allowing window dressing on such a large scale.

KV Rao, Bangalore (BS) 

Curbing fake currency menace

I refer to the article “Is the RBI helpless in dealing with fake currency notes”? (DH, July 9). The author has suggested demonetisation of currency as a solution for fake currency menace. With inflation the intrinsic value of our currency has come down significantly. Demonetising lower currency is not feasible as we need to carry on our financial transactions with them. Government should retain 100, 50 and other lesser denomination currencies. However higher denomination currencies like 1000 and 500 series should be demonetised. This will not only curb black currency transactions but also control the menace of fake currency. But the economics of printing and the sheer logistics of moving huge volumes of money will be a natural disincentive.
H N Ramakrishna, Bangalore (Deccan Herald)

Cashing in on a Rare Fortune

"Money attracts more money"!  - Investing in rare coins, currencies can help your portfolio

"Coins and bank notes can be ideal investments to diversify  your  portfolio. As more collectors are getting interested and the supply is comparatively less, it can be a very good investment channel for investors who are looking for longterm gains. But those looking for high returns in the short-term, should avoid putting their money in coins,".....

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Who will be the next RBI governor?

Will D. Subbarao get an extension after his three-year term as India’s chief money manager comes to an end on 5 September? Newspaper and television channels have started speculating on Subbarao’s likely successor as well as an extension as Reserve Bank of India (RBI) Governor with right earnest. Each time an RBI Governor’s tenure comes to an end, this has been a normal practice in Indian media. This time around, three names have been doing the rounds—Raghuram Rajan, a University of Chicago professor, an Economic Advisor to the Prime Minister and former Chief Economist of the International Monetary Fund;  Kaushik Basu, Chief Economic Advisor in the finance ministry; and Economic Affairs Secretary R. Gopalan. And many believe Subbarao will get an extension. Before his predecessor Y.V. Reddy’s five-year came to an end in 2008, the media indulged in similar speculations. Reddy, one of the few RBI Governors who were given a five-year term from the beginning, had made it clear that he would not like to continue after his term expires. Planning Commission Deputy Chairman Montek Singh Ahluwalia was a strong contender for the post. Adarsh Kishore, an Executive Director at the International Monetary Fund, and Rakesh Mohan, then  Deputy Governor at RBI, were also in the fray. Mohan, the first Deputy Governor born after independence, came to RBI in late 2002 but, before finishing his three-year term, moved to Finance Ministry as Secretary of Economic Affairs, only to come back to the central bank after eight months. His familiarity with RBI and his reputation as an economist were the factors in his favour. He was even informally interviewed by then finance minister P. Chidambaram but ultimately Finance Secretary Subbarao was chosen for the post. If indeed Subbarao gets an extension, it won’t be a first for a serving Governor. In fact, Reddy’s predecessor Bimal Jalan, who served for six years, received an extension as did C. Rangarajan, who was Governor before Jalan, for five years. I am not aware whether the government has initiated any formal process to identify Subbarao’s successor. In fact, there is no formal process for such an appointment. There is no search committee to prepare a list of candidates. The Prime Minister ’s Office (PMO) chooses the Governor with inputs from the Finance Ministry and the outgoing Governor. The politicians of the ruling party, and even regional parties, do play a role in the selection but the corporate houses that normally try to influence the appointment of chiefs of commercial banks don’t have a voice here. In its 76-year history, only once has a commercial banker been appointed Governor—A. Ghosh—who held the post for three weeks in 1985. By tradition, bureaucrats and economists are considered for this post. Ahluwalia was also the strongest contender for the Governor’s post in 1997 when he was the finance secretary, but Jalan, then member secretary, Planning Commission, piped him to the post. Arjun Sengupta, also a member of the Planning Commission, was in the fray at that time. When Jalan moved out of Mint Road in September 2003 before completing his extended term to become a Rajya Sabha member, two bureaucrats were keen to replace him but neither N.K. Singh, then a special secretary at the PMO, nor S. Narayan, then finance secretary, could make it. Reddy, who was a deputy to Jalan as well as his predecessor Rangarajan, came back to head RBI, cutting short his stint as India’s director on the executive board of the International Monetary Fund (IMF) in Washington.  Jalan, RBI insiders say, was in favour of Reddy over others as he was not fond of the idea of a finance secretary moving to the Indian central bank directly from North Block, the secretariat building on Raisina Hill that houses the finance ministry. Apparently, he thought this would encourage bureaucrats to consider the RBI governor’s post as an automatic career progression. Jalan himself was a finance secretary but there was long gap between his stint at North Block and RBI. Reddy, it seems, did not push his deputy Mohan for the top job and Subbarao came directly from North Block. Bureaucrats in Delhi say Prime Minister is in favour of Rajan while the finance minister’s candidate is Basu. Meanwhile, newspaper reports suggest a couple of past RBI governors strongly feel that Subbarao should continue as he has been doing a fine job. There is no way I can confirm the veracity of such claims but there is no doubt that an early government announcement will help remove uncertainties that has gripped the financial sector. With inflation continuing to rule very high and many believing that India’s policy rate is coming close to a peak, balancing price stability and growth will be a tough task for the central bank in coming months. Apart from taming inflation, RBI also needs to close a few projects such as private entities’ entry into banking, savings bank rate deregulation and larger play for foreign banks. There have been enough discussions on these but no closure in sight as yet. One critical difference between Subbarao and his predecessors Jalan and Reddy is that the two past governors had competent deputies who could move to the corner room at the RBI headquarters in Mumbai but Subbarao’s deputies are relatively inexperienced for the top job at this point of time. During his five-year tenure, Reddy only raised rates to contain an overheating economy. Subbarao brought down the policy rate from 9% to 3.25% to prop up a sagging economy, and later, with the rise in inflation, pushed the rate up to 7.5%. This will probably rise a little more till September. So, his rate actions will take a V shape. If indeed Subbarao gets an extension, his rate actions may look different—three-fourth of a W.

Tamal Bandyopadhyay – Mint   

NextGen of RBI smart enough to “Think Quest”

The Oracle Education Foundation through “Think Quest” conducts the ThinkQuest International Competition amongst the school children. The children work in teams and work on various projects on issues of social and other interests under a coach who is their teacher. For this year’s competition under Digital media category four children of Kendriya Vidyalaya, Ganeshkhind, Pune choose financial inclusion and financial literacy as the theme and they designed a website on the topical theme. During their field work they visited bank branches, slums, etc to assess the level of financial penetration and awareness about financial inclusion. They interviewed Ms Kamala Rajan, CGM & Principal, CAB and other professionals involved in the field of financial inclusion. Dr K C Chakrabarty, Deputy Governor also interacted with them during his recent visit to Pune. The team won the Third Prize globally. 33,00 children in 7,603 teams from 52 countries participated in this year’s competition. The team comprised Ritwik (s/o Manas Ranjan Mohanty, MOF), Abhilash (s/o R.N.Panigrahi, MOF), Akshya and Shivaskandan. While Ritwik studies in Class X, the other children study in Class XII of K. V, Ganeshkhind. Mr C P Prasanth who teaches Chemistry was their project guide.

The citation for the award reads “The great disparity between rich and poor in India serves as an illustration of what is truly a global problem. This website uses field research, neighbourhood surveys, and interviews with experts to educate the audience on the issues of financial inclusion.” (www.thinkquest.org/library/winners/2011_digital).

It is naturally very befitting that two of the children who have some indirect association with CAB, an institution playing a stellar role in furthering the cause of financial literacy and financial inclusion winning an international award on a theme so dear to RBI’s heart. The url of the website is http://www.inclusivegrowth.co.cc/Home.html 

Ex-RBI deputy guvs for savings rate deregulation

Mumbai: Even as the Reserve Bank of India (RBI) is weighing options on the deregulation of savings rates in the banking industry, three of its former Deputy Governors—Usha Thorat, SS Tarapore, Kishore Udeshi— have urged it to announce the measure without any delay. Thorat, said, “There are several issues related to the topic. First, the question being raised whether the rate on savings bank deposit be deregulated. I don’t think the issue needs to be discussed anymore. Secondly, the rate of interest on savings bank accounts has been negative for long. The question is why should savings bank rates be kept low at a time when the interest rates are going up’’ Currently, there are 55 crore savings bank accounts in the country. Rural and semi-urban areas in the country have been responsible for 40% of banks’ savings accounts in the country. Deregulation doesn’t necessarily mean that the rates can go up always. Rather, the rates falling below 3.5%, which was the rate before it was raised to 4%, can’t be ruled out, though such periods are quite short-lived. Since 2004, for most of the periods, short-term rates have always been more than that of the savings bank rates, pointed out Thorat. Thorat expected that savings bank rates will move more in tandem with short-term rates. “Yet another moot question is whether unhealthy competition will push up the rates. The rates would go up because they have been put low artificially. For a public sector bank (PSB), a considerable part of savings bank comes from rural and semi-urban areas. Dilemma before the PSBs is that they have to take a call on their depositors at the time of stiff competition. Also , should higher interest rates be paid without cheque book facility. Overall cost recovery is a good thing. It is reasonable to fix various service charges,’’ explained Thorat. Tarapore, suggested that deregulation should be implemented in the first half of the current fiscal itself and no discrimination should be allowed on the basis of size of deposits. “There should be a link between the short-term and long-term deposit rates. In the mature markets, the two rates are aligned,’’ said Tarapore. Udeshi who is also the chairman of Banking Codes & Standards of India (BCSBI) cautioned that the ratio of saving deposits to aggregate deposits is on the decline for past few years. “For decades, the depositors have been getting negative return. But, the competition will show that the return was better post deregulation. Banks are free to fix interest rate charges. The deregulation may lead to product innovation by banks.We must protect the depositors.” added Udeshi.

FE

IOB Sampoorna and IOB Smile launched

People’s cry for the chawanni

Bhopal : As the humble chawanni receives a nostalgia-soaked send-off from many Indians following the Reserve Bank’s refusal to give it any more quarter, some are ready to put up a last stand for the little guy-turned overnight hero. A BJP activist from Indore has moved court alleging the 25-paisa coin’s withdrawal from June 30 is illegal, while many others are dismayed at the silence of politicians and civil society on what they see as a “momentous decision with major financial implications”. One hitch is already being encountered in Madhya Pradesh’s post offices, which are charging 50 paise for the 25-paisa stamps that carry Jawaharlal Nehru’s picture and are used mainly to send medical literature and newspapers by book-post.  Paan shops and small groceries have been rounding off the bills, as are petrol pumps for those two-wheeler riders who buy in small amounts. Neighbourhood photocopiers have raised the rate from 75 paise to a full rupee, the bara aana now having died with its lifeblood, the chawanni. If all this sounds like small change, Bhopal-based industrialist and former head of a chamber of commerce, Rajendra Kothari, disagrees. He estimates that consumers in Madhya Pradesh would be losing Rs 700 crore a year because the 25-paisa coin has been abolished as legal tender. His charge against finance minister Pranab Mukherjee, under whose watch the decision came, is that “no thought was given” to the fact that levies like service tax and value-added tax are calculated “in rupees and paise”. “So, customers are being forced to pay extra for no fault of theirs,” Kothari said. Bhopal civil judge Varsha Sharma has issued a notice to the RBI after BJP activist Anil Bhargava sought a stay on the chawanni’s withdrawal. “Even some medicines are priced in rupees and paise. If the government doesn’t want the chawanni, why can it not announce that anything cheaper than 50 paise will not be charged and that anything over 50 paise will cost a whole rupee? It will at least even out customers’ expenses,” Bhargava said. They will not admit it but at bottom, the reactions of Bhargava and Kothari may have less to do with economic arguments and more with sentimental affection for the underdog and nostalgia for a time when it counted for something. Since last week, many ordinary Indians and celebrities have flooded social networking sites with laments for the quarter, recalling its role as their “tiffin allowance” at school, good enough to buy an ice-cream or chocolate bar —or at least a lozenge or toffee, if the writers are younger. Older Calcuttans will remember that the lowest tram fare was 25 paise even 30 years ago. For all that, the use of the coins, introduced in 1950, had already gone down because of inflation and very few people seemed to have any to return to the banks on June 29 (unless they were holding on to them as keepsakes).

The Telegraph

Growth conundrum: high rates hit industry, but prices out of control

.........."What started out as food inflation has become more generalised. We must use all policy instruments --- interventions in the foodgrains market and fiscal and monetary policies --- to bring down inflation to a more acceptable level," Rangarajan, a former RBI Governor, said...........

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Shoppers grapple with parking blues

CHANDIGARH: Lack of proper parking in Sector-17 not only poses a major problem for visitors, but also, it has turned out to be a menace for traders. Shopkeepers are claiming that due to improper parking conditions in the commercial hub of the city, visitors prefer to go to other places for shopping.  The parking problem in Sector-17 is going from bad to worse and the authorities seem the least bothered. MC is now planning to set up a parking lot near RBI office in Sector-17 and is completing formalities.

TOI

Release function of “India Development Report – 2011”

Is the RBI helpless in dealing with fake currency notes? - Vinod Vyasulu

There has been a spate of recent reports about fake currency notes which is really alarming. A few days ago, it was reported that the Bangalore branch of the Reserve Bank of India had filed a case against the branches of several reputed banks, including the State Bank of India and ICICI Bank for depositing fake currency notes with the RBI.

There was another report on July 4 from Lucknow saying that the RBI had filed a case against 20 well known banks for depositing fake currency notes with it. These were valued at over Rs 6 lakh. Mind you, fake notes circulating in posh areas, among the affluent, not the poor. And these are not isolated incidents, nor are they recent phenomena. It is a strange and yet serious matter that the custodian of currency in India has found no option of dealing with this issue than the courts of law. The courts can certainly penalise the banks if found to be in breach of law, perhaps a failure of due diligence at some level. It appears that the Bangalore incident was indeed a case of lack of diligence. But apart from issuing legal notices, nothing much is likely to happen. But the question is can the court, even if it penalises these banks for negligence, solve the problem of fake currency in circulation? That will be the responsibility of the Union government and the RBI. Conversely, cannot the banks file a counter case saying that they do not control the currency and if the RBI did its job properly, there would be no fake notes in circulation?   The Reserve Bank presently manages the currency operations through its 18 Issue Offices located in various cities. These offices receive fresh banknotes from the banknote printing presses. The Issue offices of RBI send fresh banknote remittances to the designated branches of commercial banks. That being case, the banks could well argue that these notes came from the RBI! There have been complaints of counterfeit currency for a long time from the public. People have been caught off guard at ATMs dispensing fake currency notes. Since the ATMs are controlled by the banks, the systems they have in place to keep fake notes out of circulation are clearly inadequate. We should welcome any improvements in this area.

Printing and smuggling

There have been reports in the Press that Pakistan has a policy of printing fake Indian currency notes and getting them smuggled into India through Nepal, Bangladesh etc. Now, with the RBI going to court against scheduled banks, this seems to have reached a new level of helplessness. Is the government abdicating its responsibility to maintain the currency, by asking the RBI to go to court? Does this absolve the RBI of its responsibility to maintain the sanctity of the currency? The Reserve Bank manages currency in India. The government, on the advice of the Reserve Bank, decides on various denominations of banknotes to be issued. The RBI also co-ordinates with the government in the designing of banknotes, including the security features. The RBI estimates the quantity of banknotes that are likely to be needed denomination-wise and accordingly, places indent with the various printing presses.  In recent years, there has been a shift from cash transactions to those based on electronic funds transfer, like debit and credit cards. Many transactions are conducted using cheques and drafts. This makes it possible for the RBI to consider demonitising high denomination notes, as was done in January 1978. This would make hoards of counterfeit cash useless. The RBI should consider demonitising Rs 500 and Rs 100 notes right away. That will immediately make the counterfeit notes worthless. The issue of identifying such notes, of inadequate due diligence, would also become unimportant—for a while at least. Those who stash black money in cash would also be hit. The RBI could give people, say about 15 days, to deposit their hoard of demonitised notes in any bank, along with their PAN number, and no questions would be asked, in converting some specified amount, like Rs 1 lakh. This would protect the honest people who for some reason had cash. The RBI could also consider a new design of currency notes, perhaps using different materials. Many countries do this in a routine way. Technology can be deployed for this purpose. The transition need not take long. This would be a blow against both counterfeit notes and black money. But it is not likely that the Union government, embroiled in the largest corruption cases this county has known, will ever take such steps. Cosmetic cases in court, which will have no effect, seem to be as far as it is willing to go. We cannot even hope for an improvement in the due diligence procedures.

(The writer was formerly RBI chair professor at ISEC, Bangalore) The Deccan Herald

FSDC to meet on July 27 to discuss growth prospects

New Delhi : The spectre of high inflation and a possible slowdown in the economy continue to weigh heavy on the government’s mind. The recently set up Financial Stability and Development Council is expected to discuss the issue in its next meeting. The FSDC, which consists of the four financial sector regulators and is chaired by finance minister Pranab Mukherjee, is scheduled to meet on July 27, a day after the central bank RBI presents the first quarterly review of the monetary policy.  The council is expected to discuss the macroeconomic scenario and prospects for growth. “It is a just review meeting to understand how the economy is faring and growth prospects for the year ahead,” a person close to the development said. The FSDC was set up by the government in the wake of the global financial crisis in 2008-09 and is aimed at better coordination between financial sector regulators to ensure macro-economic stability. While the economy is expected to grow between 8 and 8.5 per cent in 2011-12, the persistently high inflation and subsequent interest rate hikes by the RBI have curtailed India Inc’s expansion plans and led to fears of a possible slowdown. A burgeoning fiscal deficit is also being seen as a potential threat to the economy. Industrial production grew 6.3 per cent in April and is expected to have slowed down further in May.  Meanwhile, headline inflation rose to 9.06 per cent in May and is likely to have soared to double digits in June, following the government’s decision to hike prices of LPG, diesel and kerosene.  While the finance ministry has till now not pared down its growth forecast of close to 9 per cent in 2011-12, most economists expect GDP growth to be lower.  A worried government has held a number of meetings with investors and financial institutions. Finance minister Pranab Mukherjee discussed the economic prospects with institutional investors early last month asking them to stay optimistic about growth prospects.  The Prime Minister’s Economic Advisory Council also held a similar meeting to understand investors’ opinion about economic scenario.

IE 

Uday Kotak of Kotak Mahindra gets biggest raise, but Aditya Puri of HDFC Bank remained highest paid bank chief

Uday Kotak of Kotak Mahindra Bank led the executives pay increments in top banks last fiscal with a 58% jump, while Aditya Puri of HDFC Bank remained the highest paid bank chief as the Reserve Bank of India (RBI) debates capping fixed pay at 15%, and linking compensation to risk taken..........

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Give bank licences to non-corporates: Former RBI governor C Rangarajan

... the former central bank governor says the government should explore giving bank licences first to non corporates, before allowing corporates in the field.....................

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Provisioning for credibility - K P Shashidharan

The way banks have been providing for liabilities disproportionately in different quarters over the years came to the attention of all stakeholders and regulators when the fourth quarter results of State Bank of India (SBI) for 2010-11 devastated investor confidence and credibility in financial reporting. This impacted the bank major’s share price plummeting to one of its lowest marks............

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Spruce up the data

......India's GDP statistics are widely watched across the globe. It is understandable that the data will need to be adjusted along the way at different stages. But the extent of revisions seen recently calls into question the dependability of the data..............

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Official statistics need to be reliable -C. R. L. NARASIMHAN

Dissemination of economic data will facilitate a wider participation

It is not the first time that the reliability of official economic statistics has been publicly called into question. But Reserve Bank of India Governor D. Subbarao's well articulated and critical comments on the quality and availability of important economic data are in a separate league and ought to be viewed with all the seriousness they deserve. The RBI is perhaps the most important official user of the macroeconomic data. Monetary policy in India is not explicitly mandated to keep inflation low and stable. Yet, it needs to choose a measure of inflation as a reference. The Wholesale Price Index, despite its shortcomings, has emerged as the reference point. The RBI also generates high quality economic data. Its estimates of inflation and economic growth are widely watched. On GDP growth, the RBI's estimates have recently tended to be more conservative than the official ones. In its annual credit policy statement (May 3), the RBI sharply lowered its growth projections to around 8 per cent for 2011-12.  Obviously, the central bank depends on the official statistics to a large extent and even while it makes its own assessment, as with growth and inflation, makes copious reference to the official statistics. It is no one's case that officialdom is not aware of the shortcomings.  In fact, improvements in collection, collation and release of data have been taking place all the time. More than any other reason, the government itself needs reliable statistics to base its policy decisions on. Besides, the government had agreed a few years ago to comply with the International Monetary Fund's Special Data Dissemination Standards. Almost ten years ago, a committee headed by C. Rangarajan had suggested improvements in the official statistics and a road map for reaching certain goals. Despite all the nudging and commitment, the economic data generated falls short of what is needed for a modern, fast-growing and fast-integrating economy. It can only reflect on the complexity of the task. Primary data collection in a country so vast is obviously a stupendous task. Analysing and making the data available at a reasonable time are again a herculean task. In these circumstances, the good work being done by the National Statistics Commission and other official agencies is lost sight of. The government should seek to educate experts and lay people alike on the difficulties involved. A communication strategy, which inter alia stresses on the urgent need to spruce up the economic data and seeks widespread co-operation, should help in reducing the burden on those in charge of the statistics. Talking of education, this column has for long stressed the need to make the common person aware of the intricacies of decision making in the government, whether economic or political.  Obviously, dissemination of information on the relatively arcane subject of economic statistics will facilitate a wider participation in economic decision making. Outside interest on the Indian economy has never been higher. The country's macroeconomic data — the statements of the Finance Ministry, the RBI and others — are widely watched and interpreted. The growing integration of India with the rest of the world is the main reason. That is why quality economic data matters so much. The financial markets, especially the stock markets, are forever glued to data releases from India. Almost all businessmen need the data for a variety of purposes such as in their planning, formulating strategies and indeed in fixing production schedules. Consistent and reliable data influence business decision making positively. Dr. Subbarao's critical comments extend to the entire gamut of economic statistics. However, he chose to buttress his points with reference to the three key ones — the GDP growth data, the Index of Industrial Production (IIP) and the WPI. Citing concrete examples from the recent past, he said the data were neither reliable nor consistent. Extreme volatility as, for instance, in the IIP last year could mislead policymakers. The RBI underestimated its year-end estimate of inflation for March, 2011, pegging it at 5.5 per cent .The actual figure turned out to be a few percentage points higher. The GDP growth figures — perhaps the most widely watched — have also proved to be unreliable. In February, 2010, the advance estimate of GDP growth for 2009-10 was at 6.8 per cent. Just three months later, it was revised to 7.7 per cent and again in February, 2011, to 9.1 per cent, a revision of over 30 per cent in a year. Even conceding that the GDP data go through stages and are, hence, open to revision, the magnitude of change is staggering. As for relying on the WPI for monetary policy purposes, the Governor has pointed out that it is only a second best choice. The WPI is more like a producer price index and the only reason it is persisted with is because no viable alternative has emerged. Almost every other country relies on consumer price indices.  In India, the ongoing efforts on harmonising the various consumer price indices to arrive at one that is truly representative have not been successful so far. Finally, efforts at updating the data through new methodologies for constructing the indices have not yielded the desired results. The IIP has been revamped recently with its coverage extended and the base year brought forward. However, apart from not being able to overcome the deficiencies of the index it replaced, the new IIP might be already obsolete. Its base year is six years old and there have been frenetic changes in the structure of the industrial sector and manufacturing.

Business Line 

Microfinance: Bill to bring in order

.... The Reserve Bank Deputy Governor, Dr K.C.Chakrabarty, had said a few days earlier: “If we don’t act under a common set of regulations (for the microfinance industry), it won’t be practical to work. Five states having five different laws on the same subject will have practical difficulties for the industry.”..................

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Major role of technology in financial inclusion

..............Financial inclusion is a major agenda for the Reserve Bank of India (RBI). Without financial inclusion, banks cannot reach the un-banked. It is also a major step towards increasing savings and achieving balanced growth. ...............

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Invest in small, make it big

......In other South Asian countries such as Bangladesh, microfinance projects have helped 15 million people escape the trappings of poverty so far the sector has a massive scope for growth in a populous country such as India..............

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A big step for small lenders

.... The attempt to treat microfinance organizations as quasi-banks is puzzling, since the reason microlenders have mushroomed is that banks have not done enough to promote financial inclusion. Yet, the draft Bill speaks of “promoting the growth and development of microfinance institutions as extended arms of the banks”. This may hinder growth of the sector......

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RBI against changes in ADR, GDR voting rights

The Reserve Bank of India (RBI) is not in favour of market regulator Securities and Exchange Board of India’s (Sebi) proposal to modify voting rights of holders of American or global depositary receipts, people aware of the development said. Sebi last year amended takeover rules with regard to such voting rights and asked the finance ministry and RBI to look again at the terms of issue. Terms of issue is the agreement between an issuing company and the global depository, which also determines the voting rights. Of the 111 such listed receipts, 57 empowers the management to exercise voting rights on their behalf. Only four companies give rights to receipt holders.  Sebi proposed that the terms of issue should not curtail rights of receipt holders and suggested removing the clause empowering management to exercise such voting rights.  RBI wants to further review Sebi’s proposal, the people said on condition of anonymity. It has concerns that the changes will bring the depository receipts at par with indian equity shares, they said.

Mint

India Exchange Rate Policies - Sunil Awasthi

.................A number of suggestions have been made from time to time calling for a shift in the RBI’s exchange rate policy. One strong recommendation made by S S Tarapore in 1997 in his first report on convertibility, which he reiterated in his second report of 2006, is that the RBI should attempt to follow a policy of maintaining a real effective exchange rate (REER) band which is tantamount to a fixed target within a wider band. The RBI, while acknowledging that REER could be an indicator from a medium-term perspective, refrained from using it for managing short-term rate movements..........

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Expect a rate hike of 25 basis points: UCO Bank

.........."We expect that due to a sustained high inflation rate, the apex bank may hike the key rates by about 25 basis points at its quarterly review scheduled later this month," Arun Kaul, chairman and managing director (CMD), UCO Bank told ...........

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Lamenting chavanni’s demise - Sudheendra Kulkarni

Chavanni died last week. But the Reserve Bank of India’s unemotional announcement couched in official language—‘Coins of denomination of 25 paise will cease to be legal tender from June 30, 2011’—conveyed nothing of the immense sadness associated with the death of this lowly coin and, with it, the passing of an entire era in the man-money relationship in India. Coins of 1, 2, 3, 5, 10 and 20 paise denominations had vanished long ago. Now chavanni (four annas) is gone. Soon, athanni (eight annas or 50 paise coin) too will probably be dead ‘demonitised’, in RBI’s pitiless lingo. All money from then onwards will be counted only in rupees. When that happens, there will be nothing left of the species called ‘paisa’ in India. Has anyone paused to spare a thought on what the death of ‘paisa’ means for the social, cultural and psychological history of India?  Mourning resurrects memories. I remember the many things I did with chavanni and with other coins of lesser value when I was young. The first ‘rice plate’ I ate, while on a school outing, cost only 25 paise. The cinema ticket in an itinerant tent theatre that I frequented in my mother’s village during vacation months cost less—10 paise (for kids). The ‘pocket money’ of five paise that my grandfather occasionally gave us when I was studying in first standard was enough for me to buy a handful of locally made sweets in the next-door village shop. The boatman who ferried us across the river to the village on the other bank took no money at all. In the barter system that was still prevalent in our village in the 1960s, my grandfather gave him—and also the shoe-maker, barber and other rural service providers—grains, jaggery and other farm produce after harvest. It was an era when the rich were called ‘paisewale’. Now, with paisa itself on the brink of extinction, the rich are called millionaires and billionaires, and their millions and billions are counted not even in rupees but in dollars. How much India has changed in just 40-50 years!

IE

New coins released.............

Finance Minister Pranab Mukherjee along with MoS Namo Narayan Meena releasing a new series of coins in New Delhi on Friday

(For mroe details see VITALINFO of 9^th July)

'RBI right on rate hikes'

Conceding that intrerest rates were on the higher side and that the Reserve Bank of India (RBI) has had to raise interest rates frequently.....

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If inflation's peaked so have interest rates: Chakrabarty

Just about a fortnight before the first quarterly review of the monetary policy statement by the Reserve Bank of India (RBI), deputy governor K C Chakrabarty has made a statement which reflects the central bank’s state of mind on interest rate scenario. When asked whether interest rate had peaked, on the sidelines of finance minister Pranab Mukherjee’s meeting with the public sector bank chiefs in the capital yesterday, Chakrabarty initially feigned ignorance. “How would I know?... If inflation has peaked, interest rates, too, would. And if it hasn't, then interest rate hasn't peaked,” he said. RBI is slated to announce the first quarterly review of the monetary policy on July 26. This will be done in a meeting with the chief executives of major banks. In its mid-quarterly review in June, the RBI raised key policy rates by 25 basis points (bps) in its effort to tame inflation. It had raised the short-term lending (repo) rate by 25 bps to 7.50 per cent and the short-term borrowing (reverse repo) rate was moved up by a similar margin to 6.5 per cent. (A basis point is one hundredth of a percentage point — 0.01 per cent). “Going forward, notwithstanding both signs of moderation in commodity prices and some deceleration in growth, domestic inflation risks remain high. Against this backdrop, the monetary policy stance remains firmly anti-inflationary. Recognising that in the current circumstances, some short-run deceleration in growth may be unavoidable to bring inflation under control,” the RBI had said in its June review. Inflation rose to 9.06 per cent in May after dropping to 8.66 per cent in April. Prior to this, it had been over 9 per cent for the previous four months. The data of June will be released on Tuesday and will factor the impact of fuel price rise. The second round of impact will be evident later.

BS 

Centre to seek review of SC rulings on black money, SPOs

....... The government feels the HPC and its members -- directors of CBI, Enforcement Directorate (ED), Intelligence Bureau (IB), Revenue Intelligence and chiefs of Central Board of Direct Taxes (CBDT), Narcotics Control Bureau (NCB), Financial Intelligence Unit (FIU), Foreign Trade and Tax division, as well as deputy governor of the Reserve Bank of India ( RBI) -- are mandated to submit periodic probe status reports to the court......

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Micro-mismatch

The draft Micro Finance Institutions (Development and Regulation) Bill, meant to provide a legal framework to an otherwise unregulated sector in the Indian financial system, is an attempt to over-regulate and micro-manage the microfinance sector. The draft can at best be termed a mimic of legislation on usurious practices and moneylenders that is in place in several states of the country. Buzzwords such as “systemically important” replace “exploitation”, “expropriation” provides the modern setting to justify pervasive regulation. The draft bill adds a retrograde touch to the stalled process of financial sector reforms. The bill, if made law, will reduce competition in this industry as it hopes to regulate net margins. It will limit new entry into the industry. From the point of view of the customer, such regulation can push customers back to moneylenders who will now be outside these regulatory requirements. The present draft represents the microfinance industry as “extended arms” of banks, allowing for bank-like regulatory architecture for microfinance firms. This could potentially stall any progress in the microfinance industry. Capital adequacy requirements work for banks and not for non-deposit-taking financial institutions. In allowing a regulator to set “capital adequacy based on risk weights for assets and deployment of funds”, the draft bill fails to recognise that not all microfinance companies are deposit-taking, and even if so, the extent of deposit-taking, by virtue of the business model itself, is limited to and well below the maturity mismatch possible in its balance sheet. Prudential norms for banks lending to microfinance companies are already in place. Financial regulation is required to contain systemic risk and protect consumers. Systemically important microfinance institutions cannot be defined in terms of the number of clients they cover, but whether the failure of the institution could bring down the financial system altogether and, consequently, impact the underlying real economy. This is not an issue the microfinance industry poses today. The real issue is that of customer protection. An issue of consumer protection does not require micro-management of the business enterprise, but an effective arrangement to ensure that contracting parties are doing so knowing fully the consequences of non-adherence. The government may do well by looking into consumer protection more carefully than stifling microfinancial innovation.

IE

The New MFI Bill: Challenges before RBI

In the past two years the microfinance sector has witnessed an euphoric and unregulated growth as over-regulation and stoppage of lending in one state. The draft Microfinance Institutions (development and regulation) Bill 2011 seeks to bring some clarity and uniformity of rules to this sphere, reports Gopika Gopakumar of CNBC-TV18. The key feature of this Bill is that it will bring all microfinance services under one regulator – the Reserve Bank of India.  The Bill also proposes setting up of Centre and state level councils to advise the government on policies for the development of the sector. The central council will consists of officers from Finance and Rural Development Ministries, the RBI, SIDBI, NABARD and NHB besides six experts. The state advisory councils will have representatives from the state microfinance sector, the RBI and banks. They will advise on lending, recovery methods and grievance redressal mechanism.

What the New Microfinance Bill 2011 says?

> All microfinance companies must first register with the RBI before they begin operation.

> If activities of MFIs are found to be hurting the interest of clients, the regulator can issue 'cease and desist' order and can even cancel the registration.

> If the MFI is not satisfied with RBI's actions, then it can appeal to the central government, which will have the final say. The Bill also directs all MFIs to set up a reserve fund which cannot be used without RBI's permission. All MFIs will also be required submit their balance sheets to an RBI approved auditor. The bill gives sweeping powers to the RBI.  Among other things, the regulator will have a say on how much loans can be disbursed by the MFIs, the numbers of borrowers who can avail these loans and also the areas where they can operate. The RBI can also delegate an inspecting authority to look into the books of MFIs.

Will the Reserve Bank be able to handle such intricate details about hundreds of tiny companies working in far off villages?

Usha Thorat, Former Deputy Governor, RBI, said, "Consumer protection objective is most difficult areas of regulation to enforce because it requires various process. It is not like I go to a bank offsite and onsite inspection and look at their terms and procedures, look at the riskiness of assets or at their mismanagement." Reddy Subrahmanyam, Principal Secretary, Rural Devpt, AP, said, "Our understanding is that the existing RBI machinery or the proposed ombudsman may not be a solution. It may not be adequate to look at ground level realities. I think that's the fact which we need to discuss further." The new draft Bill says microfinance is not money lending and therefore not under the state governments' jurisdiction. But states like Andhra Pradesh are questioning the validity of this.  However, legal experts are dismissing this contention. HP Ranina, Central Board Member, RBI said, “What the Bill says is that money lending done by MFIs is not deemed to be money lending. But that is right and fair for the simple reason that even banks do money lending, even non-banking financial organizations do money lending."  "But yet they are in the purview of RBI, who is the regulator of all banks and banks necessarily lend money to the outside world. The Money Lenders Act which is covered by Constitution, which is part of state subject generally applies to unorganised sector were money lending is done." But RBI believes state government opposition could pose problems. There are many skeptics and it is yet to be seen what changes will happen before the bill becomes law.

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