Rise in power tariffs may further fuel inflation: RBI

In addition to concerns over monsoon shortfall and rising global commodity prices, RBI today said that a hike in power tariffs could further push up inflation in the coming months. The possibility of power tariffs rising is looming large, especially in the wake of spiralling coal prices and poor financial health of electricity distribution entities. In its latest macro-economic review ahead of credit policy tomorrow, the Reserve Bank of India (RBI) has said that given the increases in coal and mineral oils prices, power tariffs are likely to rise in the near-term. Noting that "utility prices, especially electricity, may need to be revised up to cover costs," the apex bank said this and other factors could become a source of "likely price pressures during the course of the year". Inflation has stayed high for 18 months now, averaging 9.5 per cent during the period. To tame it, RBI has hiked its key policy rates 10 times since March, 2010. The central bank is widely expected to announce another hike at it monetary policy review tomorrow. With coal prices on the rise, many power producers are planning to hike the already negotiated tariffs. Coal prices have jumped about 25 per cent in 2011 June quarter. Further, most power distribution companies as well as state electricity boards are deep in the red and giving calls for pushing up tariffs to improve their financial situation. Power distribution companies are estimated to have incurred a loss of about Rs 70,000 crore last fiscal and it is expected to reach Rs 1,16,000 crore by 2014-15. Talking about other sources which could fuel inflation, RBI said domestic fertiliser prices still remain disconnected with higher prices of imported fertilisers and inputs. "Large discrete changes in administered prices also affect inflation expectations," it said. RBI said the three important factors -- significant departure of monsoon from 'normal', collapse or rebuild of global commodity price bubble, and Euro zone debt crisis assuming a full-blown proportion -- could significantly alter the baseline path of growth and inflation. Growth could slowdown and inflation pick up further if kharif crop is affected or global commodity prices surge again, RBI said.

Financial Chronicle

Rising wages contributing to price rise, says RBI

MUMBAI: The Reserve Bank of India has said that increase in salaries is pushing up prices and that the wage-price spiral needs to be broken to control inflation. This observation by the central bank is seen as one more pointer to higher interest rates since this is its main weapon against rising prices.  In its report, 'Macroeconomic and Monetary Development', for the first quarter of FY12, RBI has said that there a likelihood of growth being lower than expected because inflation would continue to be the top priority. The report said that the government's schemes, such as Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), has contributed to an increase in wages. "However, the faster increase in wages vis-a-vis inflation poses the risk of wage-price spiral, particularly for food inflation, as the revision in MSPs take into account wage cost escalation," RBI said.  The lower optimism with respect to growth is reflected both in the projections made by forecasters and in the business confidence index as reported by various industry associations. The business confidence index as reported by NCAER for the first quarter of FY12 was down the least with -0.1% decline. The drop was highest according to the survey conducted by Dun & Bradstreet at 21.7%.  According to the report, the latest employment survey result of the NSSO indicates that the real wages of casual labourers have been rising in recent years. "This implies that on an average, the purchasing power of the poor may not have been dented by inflation. Rise in wages in response to inflation could also become faster both on account of MGNREGA wages being indexed to inflation and increase in wage bargaining capacity in the casual labour market. This wage-price inertial movement could add to the structural pressure on food inflation," RBI said.  Giving an indication of the thinking behind the monetary policy, RBI said, "Monetary policy will have to preserve the broad thrust on tight monetary stance till there is credible evidence of inflation trending close to a level within the Reserve Bank's comfort zone."  According to Tushar Poddar, chief India economist, Goldman Sachs, RBI will more than anything focus on taming inflation. "We continue to expect the RBI to hike by another 25 bps after July 26 in the remainder of 2011, with the next hike likely by October. We do not think, as some do, that the RBI will be done with rate hikes on July 26. Inflation and inflation expectations remain at levels so far above the RBI's preferred target that the central bank would want to err on the side of having done too much rather than too little in its fight against inflation."  RBI said that risks to baseline growth and inflation projections may arise from three factors-weaker monsoon, sharp changes in global commodity prices or the Eurozone debt crisis assuming full-blown proportions.  But RBI has said the despite the risk of a slowdown, high inflation calls for an anti inflationary bias.  At an international level, the central bank sees global momentum of recovery to be stalling because of high oil and commodity prices, strife in the Middle East and the Japanese Earthquake.

TOI

High inflation warrants continued tight policy, says RBI

The Reserve Bank of India (RBI) said high inflation warrants continued tight monetary policy despite rising risks to growth, reinforcing expectations that it will increase interest rates by a quarter point at its policy review on Tuesday. The RBI has raised interest rates 10 times since March 2010, but headline inflation remains above 9%. "Persisting high inflation and its expected slow decline warrant that the Reserve Bank continue with its anti-inflationary policy stance," RBI wrote in its quarterly report on macroeconomic and monetary developments. The RBI's survey of forecasters lowered its expectations for growth in the fiscal year that began in April to 7.9% from 8.2% previously, while raising its outlook for wholesale price index inflation to an average of 8.6% from 7.5% earlier. "Going forward, some moderation in investment and consumption demand is likely, as high inflation may erode purchasing power. The anti-inflationary monetary policy stance is also likely to soften the demand," the central bank wrote. India's economy grew at a slower-than-expected 7.8% in the quarter that ended in March. "The emerging growth risks are likely to be factored in the policy reaction," the RBI said. The Reserve Bank has been one of the most aggressive in tightening policy over the last year and stepped up its fight against stubbornly high inflation in May, raising interest rates by a bigger-than-expected 50 basis points and vowing to battle price pressures even at the cost of some economic growth.  All 23 analysts in a Reuters poll last week expect the RBI to raise rates by 25 basis points on Tuesday, although 9 of them expect a pause in the tightening cycle after July. Since March 2010, the RBI has raised the repo rate by a total of 275 basis points to 7.50%. However, inflation remains sticky at elevated levels and well above RBI's March 2012 projection of 6%. "Monetary policy will have to preserve the broad thrust on tight monetary stance till there is credible evidence of inflation trending close to a level within the Reserve Bank's comfort zone," the report said. The RBI's comfort zone for inflation is 4.0-4.5%.

BS

RBI set to hike rate again, no change in anti-inflation stance

Is RBI rate hike effective in taming inflation? - DR PANKAJ TRIVEDI & DR R K PATTTNAIK

Any further tightening will certainly have an adverse impact on growth but one is not sure whether it will have an effective control over inflation

Today, inflation control is the biggest challenge before our economy. It is not only affecting the poor and middleclass but eating away our growth prospects. Various authorities are in the process of revising GDP growth estimates. The RBI is, at its best, making attempts to keep the rising price under check. It may be recalled that during the span of two months, RBI has changed the policy rate two times equivalent to 75 basis points. Since last increase, the rise has been 275 basis points and RBI has increased rates by 10 times to control inflation and anchor inflation expectations. In this context, the moot question is: Has the repetitive increase in policy rates by RBI in the past to check inflation been successful? Headline inflation measured by Wholesale Price Index ( WPI) stood at 9.4 % with primary commodities inflation at 12.2 %, fuel at 12.8 % and manufacturing at 7.4 %. At these levels, all sections of inflation are much above the comfort zone of RBI. In view of this, RBI, as the monetary authority will take recourse to policy rate hike to control inflation and anchor inflation expectations. Two basic questions arise. First, whether changes in interest rate is really effective in achieving the goal of inflation control? Second, does repetitive increase in policy rates slow down GDP growth prospects? While, the answer to the second question could be a definite " yes" as reflected in the slowdown in the economy, the answer to the first question is inconclusive. Theoretically, interest rate is an effective tool as it represents the price of money which can be used for monetary management and thereby inflation. Furthermore, in the counter factual argument one could say that inflation could have been at much higher levels had RBI not taken monetary policy steps. Against the above backdrop, should the RBI go for policy rate increase? There is expectation in the market that RBI in its monetary policy review schedule on July 26, 2011 will increase the policy rate by 25 basis points. Some market participants also opined that the rate rise will be the last one, meaning the end of rate tightening cycle. The present policy rate at 7.5 percent has already touched the neutral rate ( threshold rate at which the growth rate will not be affected) of 7 % calculated by RBI economists and published in its Annual report 2009- 10. Any further tightening will certainly have an adverse impact on growth but one is not sure whether it will have an effective control over inflation. Notwithstanding the above argument, RBI will enhance its policy rate by 25 basis point, keeping in view money supply growth and credit growth moving at a higher rate than assumed in the Annual policy statement. Since the market has already factored this hike in their business decisions, it will smoothen market sentiments.

Dr. Pankaj Trivedi is professor and head of Finance Department and Dr. R. K. Pattanik is professor of Economics at K. J. Somiya Institute of Management Studies and Research, Mumbai

RBI warns of continued ‘near-term' inflation pressure

....Notwithstanding the slowdown in growth, the central bank underscored the fact that the persistently high inflation and its expected slow decline warrant continuation of its anti-inflationary policy stance. .....

Continue reading......... 

RBI says high inflation warrants tight policy

...."The unfinished task of taming inflation warrants continuation of anti- inflationary monetary stance, ( though) the downside risks to growth have increased," RBI said in its Macroeconomic and Monetary Developments Report released on the eve of the first quarter review of the credit policy............

Read.......... 

Excellence award for RBI's ex-Deputy Governor

MANIPAL: The 7th K K Pai National Award for Excellence in Banking, constituted by the K K Pai Trust has been presented to V Leeladhar, renowned banker and former Deputy Governor of Reserve Bank of India (RBI) here, at the T A Pai Management Institute (TAPMI) campus on Friday, by T Satish U Pai, trust member and MD of Manipal Media Ltd.  After receiving the award, Leeladhar said micro-financing institutions (MFI) play a vital role in eliminating poverty in India. He said they should be encouraged to perform their work within the ambit of possibilities. However, people who start micro-financing should have a passion to serve the poor. MFIs should be solely regulated by RBI and in order to do this, a separate department should be opened in the RBI to look into affairs of MFIs. But caution should be taken so that MFIs don't get into a crisis, he added. Financial inclusion is the instrument of economic development, he said, as it helps the poorest of the poor in the country. It is the buzz word in the financial sector today. It helps for small savings of regular contribution. The SHGs model was introduced based on this concept and lending capacity of SHGs was increased by banks through micro-financing supplementing.  Paying rich tributes to the memory of late K K Pai, Leeladhar said K K Pai and T A Pai were his mentors in the banking field. K K Pai was a micro-manager and had a photographic memory. He was a person with pragmatism and was down to earth and had real concern for his colleagues.

TOI

Once more, then no more - Parnika Sokhi & Malvika Joshi

Bankers and other stakeholders are now almost certain that the Reserve Bank of India (RBI) will increase the key policy rate, or the repo rate, by 25 basis points (bps) on Tuesday. But if they are still keenly awaiting the first quarter review of the monetary policy, it’s because of growing expectations that Governor D Subbarao will finally signal an end to the prolonged rate increase season, with core inflation showing signs of stabilising.The central bank has increased rates 10 times in the last 15 months to arrest the rise in prices. If it does so on Tuesday, it will be the third time in as many months. In May, the policy rate was increased by 50 bps, while in June the quantum was 25 bps. Economists and market watchers said though the wholesale price index (WPI)-based inflation was still much above the central bank’s comfort zone, non-food manufacturing-based inflation, or the core inflation, was steady in June, with food prices easing. “We expect RBI to increase rates by 25 bps. There could be a pause after that in case core inflation shows signs of cooling off in the coming months,” said Siddhartha Sanyal, chief India economist, Barclays Capital. In June, WPI inflation was 9.4 per cent and core inflation was 7.3 per cent, marginally up from the May figure of 7.2 per cent. Food inflation eased. It came down to 7.58 per cent as on July 9 compared to 8.31 per cent a week ago. Economists say inflation is not likely to increase significantly in the coming months unless global commodity prices, particularly of oil, oilseeds, edible oil, sugar and metals, harden, or the monsoon is a big disappointment. “The flat month-on-month core inflation, after an average rise of 1 per cent month-on-month during January-May, is encouraging, as it suggests some easing of price pressure this month, in line with the recent data signalling weakening consumption,” said Nomura Securities in a report. The brokerage firm, which expects a 25 bps increase on Tuesday, is of the view that lower commodity prices and slowing demand will moderate inflation after August. “A case for ending the rising interest rate cycle seems to be building up somewhat more rapidly than we had expected earlier. Industrial growth appears to have moderated, as April and May Index of Industrial Production numbers showed,” said economists at HDFC Bank. Moderation in credit demand is visible with bank credit registering a modest 3.75 per cent growth in the first quarter over March. Bankers said the reasons were high interest rates and an uncertain economic environment. Following RBI’s signal, banks have increased base rates by 50-100 bps since April. According to P Sitaram, chief financial officer of IDBI Bank, banks’ decision to pass on the policy rate increase to customers will depend on the liquidity conditions. “Although liquidity is getting better, it is still not very comfortable. IDBI will take liquidity into account before revising the base rate,” he said. Liquidity conditions have improved in July as compared to the previous month, as indicated by the drop in banks’ borrowings from the liquidity adjustment facility of RBI.

BS

‘Half the people are out of banking fold'

Visakhapatnam, July 24: Union Bank of India is aspiring to become the No. 1 nationalised bank in domestic operations by 2020 and the employees should strive hard to achieve the goal, according to Mr M.V Nair, the Chairman and Managing Director. He was addressing the national conference of the All-India SC, ST Employees' Association of the bank here on Sunday morning. He said the bank was upgrading its technology and laying emphasis on customer relations and financial inclusion. “Even now, fifty per cent of the population is out of the fold of the banking system and therefore our prime endeavour should be financial inclusion. Union Bank has adopted the Business Correspondent model recommended by the RBI and appointed many BCs in the villages, but that is not enough. Bankers should go to villages,” he said.

HBL

Farm debt waiver scheme: CAG seeks details from banks

NEW DELHI: The government auditorCAG has sought details from all banks, including regional rural banks and cooperative banks, regarding the implementation of the Rs 71,000-crorefarm debt waiver scheme. The scheme provided relief to about four crore farmers. Information has been sought to examine how effectively the Agricultural Debt Waiver and Debt Relief Scheme was implemented, sources said. TheComptroller and Auditor General (CAG) is in the process of collating information on the implementation of the scheme. Once the report is finalised it will be presented in Parliament. Usually, CAG does not audit banks as it is done by the RBI and chartered accountants. In 2008, the government had announced the scheme for waiving loans of about three crore farmers and giving partial relief to one crore more cultivators. Under the scheme, marginal farmers cultivating crops in agricultural land of up to five acres got full debt waiver on their short-term crop loans. The scheme, which was for a limited period of 30 days, closed on June 30, 2008. Other farmers having more than five acres of land, received a one-time settlement relief after the payment of a portion of the debt. The debt relief scheme, however, ended in June 2010.

ET

Govt plans to revise WPI base year to 2010-11

Amid concerns expressed by the RBI over wide variation in provisional and final data, the Industry Ministry is looking at revising base year to 2010-11 for computation of inflation index with a view to present more realistic picture of the price situation. The government, in September 2010, changed the base year for calculating Wholesale Price Index (WPI) from 1993-94 to 2004-05 to give a better indication of changes in prices of commodities. "In view of the fast changing developments, we are again thinking of changing the base year for WPI. We thought of 2009-10 but the idea did not find favour as it was a bad year because of the impact of global economic crisis. We may adopt 2010-11 as the new base year," an official said. Reserve Bank Governor D Subbarao earlier this month had expressed concern over the wide variation in macroeconomic data, including those on growth and inflation. "In the RBI, we are handicapped by the reliability of some of the basic data that we need to use in policy calculations...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," he had said. The move to revise WPI data, a source said, would help in narrowing the gap between the provisional and final data and provide more updated inputs necessary for formulation of policies. "Currently, a variation (between provisional and final numbers) of about 1% is coming in the new WPI index," the source said. The new index, with 2010-11, is expected to have new items, which would provide a more realistic picture of price rise and its impact on people, the official said, adding most of the additions could be in the manufactured products category. "If the DIPP will start the process now, the exercise can be completed in 15 months and by April 2013, we can come out with the new WPI index," the source added. The Department of Industrial Policy and Promotion (DIPP), an arm of industry ministry brings out the inflation data. Currently, the WPI measures a total of 676 items against 435 earlier. The new items added include readymade food, computer stationary, refrigerators, dish antennas, VCDs, crude petroleum and computers. In the primary article group, few products were being added. Overall inflation for the month ended June stood at 9.44%.

BS

Alternative banking

It is heartening to note that customers are increasingly using alternative channels for banking. Presently, this is true only in the case of individuals and the retail segment. ATM, Internet and mobile banking have enabled customers to access banking services almost 24/7 and the credit should go to the public sector banks and the Reserve Bank of India. Even though most of the banks provide many security mechanisms and authorisation levels, individual and family-centred business firms still prefer to come to the branch. Just as it has been made mandatory that taxes are to be paid online, the Reserve Bank of India should convince firms to use the online facility for all their financial transactions. Only then will technology inclusion in the banking sector bear fruits for one and all.

S. A. S. Sarma, Hyderabad (HBL)

What's wrong with our statistics?

Irony by definition is laced with dark humour, but it would be more like black humour when one views data systems in India. Less than a week after the Reserve Bank of India (RBI) expressed concern over the quality of data, the Central Statistics Office drastically reduced the Index of Industrial Production (IIP) growth number for capital goods for April to 7.3 per cent from 14.5 per cent when it was initially announced......

Read....... 

Rate tightening is not over, yet

What Reserve Bank of India governor D. Subbarao says on Tuesday will perhaps be more important than what he does. Bankers and business houses have already begun complaining about high interest rates, but most economists and financial market participants are expecting the Indian central bank to continue its fight against inflation by increasing its key policy rate by 25 basis points (bps). That would be a sensible course of action since wholesale prices are still growing at around double-digit rates. Food inflation has begun its downward journey in recent months, but core inflation and the inflation expectations of households are still far beyond safe limits. Subbarao is also aware of the fact that the economy is slowing, but the time to shift focus from battling inflation to supporting growth has not yet arrived—unless a financial shock emanating from either Europe or the US upsets all calculations. While Union finance minister Pranab Mukherjeeis yet not prepared to move down the official growth estimate for 2011-12, most private sector economists expect the Indian economy to expand by around 8% this year, around 1 percentage point below early estimates.  Analysts will watch out for indications in the policy statements about how far interest rates are from their peak. Around 50-75 bps is a fair estimate, which means that we should see two or three more interest rate hikes by the end of December. There are already signs that the 10 interest rate hikes since March 2010 have finally begun to squeeze consumer demand, going by sales trends in sectors such as automobiles and housing that have significant multiplier effects on commodities such as steel and cement. Weaker demand is likely to keep inflation in manufactured goods in check. Even though inflation will not fall appreciably in the next few months, it is quite likely that it would be around 2 or 3 percentage points lower by March 2012. The new normal will still leave inflation at a level far above the comparative number for most other major emerging markets. But that is a problem that cannot be solved without active help from the government in New Delhi, through a new reforms drive and a tighter fiscal policy. Neither is on the horizon right now. 

Mint

DK banks need to pull their socks up

MANGALORE: It was a rude reality check for bankers in Dakshina Kannada district, regarded as cradle of banking, at their inability to meet lending targets as specified by Reserve Bank of India. This inability stood starkly exposed at the district consultative committee meeting for banking development of the district here where reluctance of few banks to disburse education loan as well most banks to achieve RBI prescribed credit deposit ratio came in for criticism. Mangalore MLA U T Khader pointed out to the committee which met here recently that students come to him with complaints of their education loan applications being rejected by banks and that there is no effective grievances redressal system. M S Hasan, lead district officer from RBI, said the apex bank has relaxed norms pertaining to education loans and it must be given to students up to Rs 4 lakh without any collateral security and after following KYC norms. Hasan reminded the bankers that lending for education purpose was investing in the future of the nation and bankers must be aware of the RBI guidelines pertaining to such loans. Hemanatha Bhide, lead district chief manager, pointed that most of the students who apply for education loans are those who come on merit seats from examinations such as the CET and their loan requirement would not cross Rs 4 lakh.

TOI

Banks seek RBI help on Noida Ext loans

NEW DELHI: Facing a potential hit on nearly Rs 10,000 crore lent to builders and home buyers in Noida Extension, banks are planning to seek a special dispensation from the Reserve Bank of India to do without setting aside funds for possible default on these loans.  "We will need the regulator's indulgence on the matter. This is an extraordinary situation necessitated by court rulings," said the chairman and managing director of a public sector bank. The issue is expected to be taken up at the level of the Indian Banks' Association, the industry lobby group, whose management committee is due to meet this week.

TOI

Of visually impaired customers

There are certain procedural guidelines for banking facilities to visually impaired persons where the Reserve Bank of India (RBI) has advised banks that all banks must render the same services to a visually impaired person as it would to any other person without discrimination....

Read...... 

Single 'know your customer' form may replace separate KYCs

NEW DELHI: Thefinance ministry has proposed replacing the separate 'know your customer' (KYC) checks run by banks andfinancial institutions with a single, more stringent one. The proposal, being examined by all financial sector regulators, was discussed at a recent meeting of the Financial Stability Development Council, or FSDC. "Multiple KYC make the investing process cumbersome," a finance ministry official said, adding that the proposal was under "active consideration". KYC is the due diligence done by banks and financial institutions to identify and locate an entity or individual to ensure that financial transactions are not a part ofmoney laundering or terrorist financing. The official said a single KYC would mean a more rigorous scrutiny of the entity involved. The sub-committee of FSDC, chaired by Reserve Bank of India governor D Subbarao, has representatives of all financial sector regulators and senior officials from the finance ministry. India has also beefed up its KYC norms in line with the requirements of Financial Action Task Force, or FATF. Compliance with FATF standards, which are benchmark regulatory policies to check money laundering and terrorism financing, is essential for international relations of financial institutions and governments. "These standards can be adhered to while making the process uniform and less cumbersome," a government official said. However, the uniform KYC will not dilute the basic tenets; rather make them more stringent, as concerns over black money deepen in the country, he added. The Securities and Exchange Board of India, or Sebi, has already decided on a single KYC for all stock-market transactions and is taking a formal proposal to its board at its July 28 meeting. "Sebi will discuss how to use the UIDAI's (Unique Identification Authority of India) Aadhaar for the KYC requirements," a Sebi official said. The markets watchdog has constituted a committee to examine the idea and take the views of various departments. There are at least six separate sets of KYC norms that an investor must comply with to participate in capital market transactions, though all are regulated by a single entity. Sebi had experimented with the idea through a Market Participation Identification Number, or MAPIN, that was mandatory for transactions of over Rs 1 lakh. It was scrapped in 2007. "For single KYC to succeed, all financial market regulators like Sebi, RBI and IRDA need to sit together. Also, this needs to be connected to UID, which has been rolled out with a lot of thought process," said Ashok Bakliwal, president of Bombay Shareholders' Association.

ET

A lesson in loans

The purpose of education loan introduced by the government in 2001 was to ensure that meritorious students did not discontinue studies for want of funds. Subsequently on the basis of complaints from students and parents on the difficulties faced by them in securing loans, the Reserve Bank of India (RBI) revised the scheme to ensure “more affordable terms and conditions”. Yet, there are innumerable complaints of eligible students being denied the loan, of inordinate delays in grant of loans, of banks demanding collateral security even for amounts that do not require any and cases of corruption and harassment of applicants. I do not know how many students are aware of this, but in such cases as these, they can complain to the nodal officer of the bank and if he does not resolve the issue, complain to the banking ombudsman (www.bankingombudsman.rbi.org.in). I give below three cases decided by the ombudsman . In the first case, in violation of the guidelines framed by the RBI and the Indian Banks Association which clearly state that no collateral security is required for loans up to Rs 7.5 lakh, the bank had taken as security, LIC policies and a fixed deposit of Rs 75,000 from a student who had taken a loan of Rs 2.98 lakh. Also, in violation of its own terms and conditions of sanction, it started recovering the EMIs two years ahead of schedule and without any notice to the customer and even slapped cheque bounce charges. The banking ombudsman directed the bank to return the securities, reverse the cheque bounce charges and reschedule the EMIs. In another case, where the bank returned the application papers after three months (as per guidelines, it is to be disposed of in 15 days to a month) saying that the loan disbursement officer was ill, the ombudsman directed it to pay Rs 10,000 towards compensation and also reconsider the loan, which was duly sanctioned.  In the third case, where the bank had rejected an application on the grounds that “certificate courses” were not covered under the education scheme — this had been upheld by the ombudsman too — the appellate authority under the scheme intervened. The authority pointed out that the guidelines on the educational loan scheme provided only an indicative list of all eligible courses. The bank was free to extend the loan to any course not covered in the list, with the avowed objective that no eligible student should be deprived of higher education for want of finance. The bank was directed to grant the loan.

The Telegraph

Ring of fraud

Saheli Mitra checks out the plethora of scam messages hitting the inboxes of mobile phone subscribers and tells you how to avoid being duped

If you are a mobile phone subscriber, you may have received messages like these on your phone. They bring happy tidings — telling you that you have won a king’s ransom at some mysterious lottery you have never heard of or participated in. However, as many people have found out to their grief, such messages are nothing but skilful and elaborate scams — meant to make you poorer rather than richer. Surabhi Sen, a Calcutta homemaker, fell victim to one such fantastic sms. When she responded to it, she was given a State Bank of India account number and asked to deposit a sum of Rs 15,000 as “transaction fee” for processing and remitting her prize money. Once she paid up, the scamsters took off with the money, and that was the last she had heard of her alleged winnings.  Indian mobile phone users are being flooded with scam smses like these. They come in various forms — lottery wins, employment opportunities, offers to work from home or to get admission at reputed universities abroad. If you respond to these messages, you are looking for trouble. You will invariably be asked to pay an amount under the pretext that it’s a transaction fee, or a registration fee or a processing or clearing fee. You will be persuaded to deposit it in an Indian bank account. Once the money is deposited, it is either withdrawn immediately or fresh demands for higher amounts are made with such messages as “The delivery will not commence unless the courier charges are paid”. And if you happen to be so gullible as to reveal your bank account details, the fraudsters can misuse the information in many ways — starting from identity theft to cleaning up your account. “The only way to stop this vicious network is by making consumers aware of the modus operandi of these scams,” says C.L. Nag, General Manager, Foreign Exchange Department, the Reserve Bank of India (RBI), Calcutta. The RBI has been trying to get all banks to hold awareness programmes, urging customers not to reveal their bank account details in response to phone messages or to unauthorised persons. “We held two awareness drives at Howrah and Sealdah stations in Calcutta earlier this month to make people aware of these frauds. But we need to hold these drives in semi urban and rural areas too where awareness is pretty low,” says Nag.  

The Telegraphlaborate scams — meant to make you poorer rather than richer.Surabhi

The issues facing heads of Banks

In the ultimate analysis, RBI's policies are to be implemented by banks and hence banks' priorities and commitment are crucial. We would seek to show that priorities of banks seem to differ from priorities of RBI. One general comment on bankers' perception of the future growth of the banking industry is that Bankers seemed to be Basel obsessed.....

Details

Savings bank rate de-regulation: A case of hyperbole?

....To be sure, one can say that the RBI could not have adopted any drastic demand containment and inflation cooling measures given its multifarious responsibilities on the growth and development front. Well, that is an issue for the Government and the RBI to settle. But, from an immediate technical perspective, one feels the SB rate is not that important here.....

Read..............

Eyes on growth cues in RBI policy

Mumbai : As RBI governor Duvvuri Subbarao prepares to table the apex bank’s first quarter review of the monetary policy on Tuesday, analysts are not so much concerned with another rate hike — rather they are placing more importance on the tone of the policy statement, with expectations that the RBI will take note of economic growth in its announcement. The central bank has so far hiked the key repo rate 10 times since March last year to 7.50 per cent to rein in an obstinate inflation. Economists are nearly unanimous in their view that the RBI will again raise the repo rate by 25 basis points, with headline inflation inching up to 9.44 per cent in June. The repo rate is the rate at which the apex bank provides liquidity to banks. The RBI’s action was followed by the banks hiking lending rates. The State Bank of India has raised its benchmark prime lending rate by 225 basis points since March last year.  These developments have not only affected some of the interest rate-sensitive sectors but also credit growth. In a recent meeting with the RBI, senior bankers had urged the apex bank to put a brake on rate hikes, citing a slowdown in new loan sanctions and a drop in industrial output in May, the slowest in nine months. HDFC Bank chief economist Abheek Barua had recently said, “In our assessment, the RBI rate action will continue to be driven somewhat mechanically by inflation data that remains way above its comfort zone. Thus a hike of 25 basis points in the policy rate seems almost certain on July 26.’’ However, the question that is now being asked is whether the RBI is at the end of its tightening cycle as the repo rate has already been hiked by 275 basis points.  Some analysts aver that the repo will not be hiked by more than 50 basis points from its current levels. Speaking to The Telegraph, Jitendra Arora, senior vice-president (investments), ICICI Prudential Life Insurance, said the RBI was likely to hike the key rate by 25 basis points as inflation had refused to recede. However, Arora said the central bank’s position on the way forward would be crucial. He is of the view that the RBI may soften its stance on rate hikes and will be less hawkish compared with its last policy statement since growth has slowed down.  “We may see the RBI giving more weightage to growth when it comes to future decisions,” he said. Rupa Rege Nitsure, chief economist at the Bank of Baroda, expects a quarter of a percentage point rise in the repo rate. She said the RBI governor might offer some clarity on the rate after which it would take a breather. She believes the central bank may watch the growth trajectory with equal importance in the future. “Though controlling inflation will be high on the RBI’s agenda going forward, it will not be aggressive. This is because, the tightening done so far has led to some slowdown. If the RBI continues to raise rates too fast, it also does not augur well for the asset quality of banks’’, she notes.

The Telegraph

Yields seen up if RBI maintains hawkish stance

Markets have already priced in a rate rise of at least 25 bps. The Reserve Bank of India (RBI) will announce the first quarter review of monetary and credit policy on July 26. Yields may harden if there are any indications of further rate rises. Markets have already priced in a rate rise of at least 25 basis points in the upcoming policy review. However, it remains unclear on the course of policy rates thereafter. “At the upcoming review, more than the call on interest rate, the guidance on policy and inflation over the short term would take precedence,” said IDBI Bank in a research note. RBI has increased policy rates by 275 basis points since March 2010, citing inflationary pressures. The Wholesale Price Index (WPI) is still above RBI’s comfort zone. The WPI for June was 9.4 per cent. The yield on the 10-year benchmark government bond closed at 8.31 per cent on Friday. “Yields may move up to 8.40 per cent if the policy tone is hawkish,” said K Ramanathan, chief investment officer of ING Investment Management. Yields have come off 8.40 per cent levels since May. At the shorter end of the curve, call rates have been hovering at a spread of up to 20 basis points above the RBI repo rate which is at 7.50 per cent. The weighted average call rate, which is the RBI’s target rate, is expected to move up as it adjusts to the new policy rate corridor after rate rise. However, strong demand from banks ahead of the policy may push up the rates tomorrow. The government is scheduled to borrow Rs 12,000 crore via sale of dated securities this week. Also, RBI will auction Rs 7,000 crore worth of 91-day treasury bills and Rs 3,000 crore worth of 364-day treasury bills on Wednesday. Last week, the government said it would not borrow more than Rs 4,17,000 crore as planned and will manage short-term mismatches with the help of cash management bills. RBI had auctioned Rs 12,000 crore via two issuances of cash management bills last week.

BS

RBI may have to walk the tightrope

Will the RBI which has been hiking interest rates heed the plea of large sections and ‘pause'? The answer to that obviously depends on how serious the inflation is viewed, not just a number approaching double digits, and the adverse impact it has on expectations. Second, it is not correct to attribute the slowdown in industry to higher interest rates alone. There is no doubt at all that major policy imbroglios over such matters as land acquisition and environmental clearances for sensitive projects have contributed to the slowdown.....

Read.....

There is a need to pause on rate hikes'

As a banker, I feel today there is need to pause. Today when we are projecting growth of 8.5 %, inflation is killing the growth. Now if you kill inflation, growth will also be affected. So you have to keep inflation in check and at the same time you have to also see that growth is not killed or else everything will be hit.....

Details 

Apex bank unlikely to pause in the rate tightening cycle

Is it time to pause? The question asked by many on the forthcoming review of the first quarter of Monetary Policy of 2011-12 this week is difficult to answer. .....

Read......................................

The way to rein in inflation

......In India, inflation is often viewed in a myopic way and the larger picture is rarely considered. It is important to recognise that inflation in itself is not bad. When inflation becomes chronic and integrated in the growth itself do problem arise. If certain policy measures are initiated to address this issue from a long-term perspective, it will go a long way in bringing inflation down to more manageable levels and in the end keeping the India growth story alive........

Read..........

Down the memory lane



Looking back:

V.Satyavathi with daughter Ratnamala Nori at their residence in Durgabai Deshmukh Colony



Eighty eight years old V. Satyavathi has never worn anything that is not made from the loom. This advocate of khadi can still spin the charka with verve. Sitting in the backyard of her house in Durgabai Deshmukh Colony, a few yards away from Durgabai's “Rachana” she recollects her association with the social reformer on whose behest she and her husband V.N. Murti came to Hyderabad and settled down in the same locality.  The locality was later named after Durgabai whose birth anniversary was celebrated on July 15. “My husband and Durgabai studied in Andhra University. She was studying law then.

It was again in Mumbai that we connected when my husband was working as Director of Economics and Statistics in RBI and C.D. Deshmukh was the Finance Minister. His younger brother worked in the Reserve Bank and stayed in the RBI building in Colaba as we did. We in fact threw a party for Durgabai and C.D. Deshmukh on their wedding,” she recollects about the reception that was attended by Burra Venkatappaiah, N.G.K. Murthy and others. It was probably the Andhra connect that brought the Murtis and Deshmukhs together, says Satyavathi, hailing from Kakaraparru village in West Godavari. “Durgabai used to sell khadi clothes door-to-door in Rajahmundry as a member of INC. She had Pattabhi Seetaramaiah and Bulusu Sambamurthy as mentors. Even in Mumbai she would come and give talks at the ladies club in the bank quarters on emancipation of women in the villages. She spoke very well. I visited the Andhra Mahila Sabha she first started in Chennai.  They worked towards development of women, conducted debates and taught Hindi,” adds Satyavathi who in fact learned Hindi at the AMS, Chennai then. V. N. Murti was the chairman of the Literary House that was started at the Andhra Mahila Sabha in Hyderabad later. As a State Resource Centre for adult education it did yeomen service publishing text books and later using puppetry as a medium for spreading the literacy message. “We were sent to Lucknow to learn the art from Welthy Fisher,” recollects Ratnamala Nori, daughter of V.N. Murti. Equipped with a story board with themes such as thrift and women's education, puppets and a van, Ratnamala toured various villages.  Her programmes such as ‘Illali Chaduvu Intiki Velugu' were also aired on Doordarshan. Today Nori Art and Puppetry Centre holds many memories. A potted Bangkok rose, a favourite of CD Deshmukh, still blossoms here. “C.D. Deshmukh gifted the plant to my father. They were close friends,” she says with nostalgia as she pours through the autographed book of Deshmukh. “He was a shattered man when Durgabai died. He would stroll over often and one could see the void he felt,” says Satyavathi, probably one of the few persons who knew the eminent family from the State at virtually close quarters.

HBL 

Banking on Bharat



“At one end of the spectrum lies the demand to achieve financial inclusion because nearly 50% of the country’s population is yet to be covered under the formal system of banking and at the other end lies the task to fulfill the needs of the existing customer.”



Read................. 

Cops nab cash-filled car after long chase



Sahibrao Nalawade (right) and Kiran Phalke



Swift Dzire with Rs 20 lakh in Rs 10 denomination notes intercepted in Kalyan; three men detained

A car full of cash headed towards Navi Mumbai from Nashik. A man who claimed he was an officer of the Reserve Bank of India. A story about where the cash came from and where it was being taken that did not wash with the cops. The Kalyan police on Saturday were left grappling with a mysterious case after they intercepted a car in which three men were transporting Rs 20 lakh in Rs 10 denomination notes. The cargo was so heavy -- Rs 20 lakh in Rs 10s is 200,000 notes -- that the car's rear was tipping. The car was intercepted after a 45-minute chase, just as it was entering Dombivli. The three men detained have been identified as -- Sahibrao Nalawade, who claimed to be an RBI employee; Ganesh Phalke, who was driving the car; and Kiran Phalke, his brother, who was in the rear seat with a travel bag full of cash in his lap. The cash was in eight bags -- four in the car's cabin and the rest in the boot.  At the time of going to the press, the cops had been told two stories and they were not buying both. Nalawade told the cops that he had nothing to do with the cash or the other two in car and that he had taken a lift. However, cops said he had tried to jump out of the car and escape just minutes before it was intercepted. Also, they found an RBI officer landing in a car full of cash too much of a coincident. The other two occupants of the car said the money was withdrawn from a Bank of India branch in Nashik and that it was being taken to Sanpada in Navi Mumbai to be distributed to big restaurants and malls that require large amounts of small change. They said they did this for a small commission. It being a weekend, the cops found it difficult to get through to Bank of India branch in Nashik to cross-check the brothers' claim.

When Mumbai Mirror contacted RBI spokesperson, Alpana Killawala, she said: "I cannot comment off hand without knowing facts. I will find out on Monday and let you know."  Assistant Commissioner of Police DS Thakur received a tip-off at 1 pm about a blue Maruti Swift Dezire laden with cash entering Kalyan. The message was relayed through control room to all police stations and at least five team scrambled to chase the suspect car. Around 1.45 pm the car was spotted near Durgadi Fort by one of the teams. "I saw the car first at Shivaji Chowk. As soon as I saw the car, I knew it was the one we were tipped off about. Its boot was almost touching the road and I could see two men in the rear seat," said ACP Thakur. The car had now picked up speed and the cops were finding it difficult to catch up with it. However, thanks to bad roads they managed to intercept the car on the Kalyan-Dombivli border. "Just before the car was intercepted, one of its occupants (later identified as Nalawade) jumped out and tried to escape. However, one of my teams caught him," said ACP Thakur. The car, the money and the three suspects were first taken to the Manpada police station, but the case was later transferred to the Bazarpeth police. ACP Thakur said they will be looking at three angles in the case. "First we want to check if the cash is genuine currency notes. Second, since they came from Nashik, where a security press is located, we want to check if freshly minted notes were pilfered out. Third, of course, is what were they going to do with all this cash," he added.

Mumbai Mirror 

Fai, fake notes, terror: Pak’s multi-pronged war on India

A whole section of the Pakistani establishment seems to be revolving around and thriving on a single-point agenda: destabilise India. The Ghulam Nabi Fai episode now and the Tahawwur Rana-David Coleman Headley affair a couple of months earlier have already exposed the extent and intensity of the engagement of powerful state forces with the anti-India terror elements. It now comes to light that the racket involving the printing of fake Indian currency is not the handiwork of some lone isolated outlaw or a group of such characters backed by rogue officials of the ISI. The link leads straight up to the state-owned mint in Pakistan. According to a report in DNA, sources in the National Investigative Agency (NIA) have revealed that the fake currency notes circulated in India to sponsor terror agents and destabilise the economy are manufactured in the same state facility where Pakistani currency notes are also printed. The expert committee, which compared genuine Pakistani notes with the fake Indian ones, has found startling similarities. The initial report of the committee says that the dry offset printing method was used to manufacture both; the PH value found on fake Indian currency notes of the denomination of 500 and 1,000 was exactly the same as in the Pakistani notes; and the grammage – the grams per square metre of paper, an indicator of the nature of the paper used – was identical too. The last one and the presence of poly vinyl alcohol on the surface of the papers used, make it clear that the paper for both types of currency notes came from the same source, the report says. The committee concludes that the quality, scale and other technical values make it clear that both sets of currency notes could be manufactured by machines owned by a country only. The Pakistani origin of the fake notes doesn’t surprise anyone. Such notes have been in circulation in India for a long time now and conduits are picked up by intelligence and law enforcing agencies on a regular basis all over the country. The CBI and other agencies are right now probing how the terror outfits on the other side of the border lay their hands on the security features of the secret templates for Rs 500 and Rs 1,000 notes. Investigators link the theft to the ISI’s desperation to make the fake currency notes look authentic. The earlier notes, though cost effective, were detected easily. After getting hold of the template, the manufacturers have also shifted to imported paper for printing from the wood pulp-based paper earlier used. The ISI’s dogged efforts at counterfeiting have made the fakes hardly distinguishable from the original. The threads, the watermarks, the Ashoka Pillar, Mahatma Gandhi’s image, the denomination and the RBI mark in the new bunch of notes are sharp and nearly as good as in the original India notes. The investigators have been hinting for sometime that the operation has been moved to government presses in Quetta, Lahore and Peshawar to achieve more sophistication. The final product is then routed from the presses into India through conduits in Nepal, Bangladesh and Sri Lanka. The NIA expert committee’s revelation only confirms the suspicion. What is surprising here is the scale of the conspiracy against India and it multi-prongedness. At one level Pakistan is spending an enormous amount of energy to influence intellectuals across the globe against India — the Fai episode makes it evident — and at another level it is directly unleashing forces such as terror outfits and the counterfeiting racket to weaken us. There could be many other undetected fronts too. If only the country spent that much energy in putting its house in order. But since Pakistan seems so keen to print Indian currency, maybe as a confidence-building measure we can hand out the contract to the Quetta mint. This way the RBI saves the cost of printing the notes, and the Pakistanis can send us the money through the Samjhauta Express instead of low-level couriers.

First Post

Balancing helped us to avoid instability: Y.V. Reddy

The importance of ethics in all walks of life, common sense and the precedence of intuitive understanding over technical mastery are among the key lessons from the global financial crisis, Y. Venugopal Reddy, former Governor of the Reserve Bank of India said on Friday. Delivering the 48^th convocation address at the IIT  Madras, Mr. Reddy said the main reason why India was only marginally affected by the crisis was the importance given here to a “balance between several factors.” While the policy view in the US was that asset bubbles being difficult to define are best managed after a burst, the Indian approach is different and concerned with distributing “gains and pains” among the people if the bubble builds up and bursts, Mr. Reddy said. Putting restraints on banks extending credits or investing in housing or equity markets was the Indian way of ensuring that innocent victims were not victims of an asset bubble burst, according to Mr. Reddy, who is currently Professor Emeritus, University of Hyderabad.  “The balancing helped us to avoid financial instability and record the highest growth rates with price stability,” he said. Mr. Reddy recalled that once when asked how the RBI intervened in foreign exchange markets without basis for knowing in advance the right forex rate, he had stated: “I cannot define God. That does not mean that I cannot identify the devil…” According to him, the financial crisis also brought into focus severe weaknesses in current economic thinking and demonstrated how some learned policy makers and leaders in financial markets were lacking in intuitive understanding of the world.  “Many of them had impressive technical understanding, but in their role as leaders, they needed intuitive understanding,” he said. Mr. Reddy stressed the need to have good values on a continuing basis that determine relative weights to competing considerations, especially, between personal welfare and public interest. Citing an anecdote about a Lieutenant in the French Army being told by his General that at his level there was no difference between tactics and strategy, Mr. Reddy said the take-away lesson was that as one shoulders higher responsibilities, one needed to go beyond measurables in decision-making. Mr. Reddy told the graduands to get ready for an exciting future when India would offer plenty of attractive opportunities and surpass China as the nation that creates maximum wealth. The IIT-ian would also be the best equipped to deal with the challenge of multiple transitions ahead, he said. M.S. Ananth, IIT-M Director and chairman of the Senate, presented a report highlighting the academic, co-curricular and socially relevant activities undertaken by the IIT over the past year.  He later presented degrees to 1,385 candidates, including 245 in absentia. M.M. Sharma, Chairman, Board of Governors, urged students to consider a career in the academic world that held many rewards as the economic prosperity of a nation hinged on the output of doctorates per million of population. “We in the academia have the spiritual freedom to pursue blue sky research, innovate and yet not be affected by oppressive corporate and management pressures,” he said.

HBL  

Policy pressure on portfolio

The successive increases in policy rates by the Reserve Bank of India have necessitated changes in investors’ portfolios. Some ideas on how one should go about those. The policy measures of the Reserve Bank of India (RBI), the country’s apex bank, are watched with a lot of interest. These are among the most significant drivers of the economy and financial markets. RBI is in charge of the monetary policy, which has a great impact on liquidity conditions and interest rates. The Bank has been entrusted with managing liquidity and inflation in the country. The investing class, therefore, needs to understand the basics of monetary policy and how it impacts investment. RBI has several tools in its hands to release or control liquidity in the system. Two of the most important tools are the cash reserve ratio (CRR) and the liquidity adjustment facility (LAF). CRR is the proportion of their deposits that banks have to keep with RBI. Raising CRR is one of the most effective ways for the RBI to suck liquidity out of the financial system, reducing demand in the economy and, thereby, helping curb inflation.LAF is a mechanism through which RBI lends to and borrows from banks for very short periods, typically just a day. The repo rate is RBI’s lending rate and the reverse repo rate is RBI’s borrowing rate. These two rates help RBI influence short-term interest rates in the rest of the financial system. When RBI increases these rates, the banks also increase deposit and lending rates. The effect of increase in policy rates is that the banks increase deposit rates and lending rates. Rising interest rates are adverse news for the stock markets. The high cost of capital directly affects the performance of companies in rate-sensitive sectors. For example, banks may not be able to pass on the entire increase in cost of funds to their customers, thereby affecting net interest income. Higher loan rates may force individuals to postpone purchases of homes, vehicles, consumer durables, etc, and thereby bring down the overall demand for loans affecting banks and supplier companies such as real estate, auto, infrastructure, etc. Most businesses need capital to run their day-to-day operations that require a mixture of debt and equity. Companies with huge debt on their balance sheets and those needing greater funds in the form of debt for expansion are worse affected. For, when interest rates rise, so does the cost of borrowing. Higher rates also increase the interest cost burden of indebted companies and thereby bring their profits down. With inflation becoming a major issue, interest rates can only go up. So, investors should avoid rate-sensitive sectors like financial services, real estate (and, to some extent, automobiles) at least for some time. Cash-rich companies sit pretty during these times. They don’t have to borrow capital and can earn from short-term investments of the cash in their hoard. The benefit they earn on the treasury income won’t be substantial. But cash becomes handy now because they can fund their growth without resorting to high-cost debt. Companies with surplus cash are able to benefit by way of higher yield on investments. Sectors such as pharmaceuticals, fast-moving consumer goods and information technology are considered non-interest rate sensitive by investors and are safe to park money during a high-rate regime. This is because you can postpone buying a house, but you cannot postpone buying day to day things like biscuits, cosmetics, detergents, toothpaste, etc, which are a daily necessity or medicines. It is the rate at which RBI borrows from banks. RBI increased the reverse repo rates by 200 basis points in less than a year’s time. The table above gives the return for one year for the CNX NIFTY and various sector indices. As seen in the table, due to increasing interest rates, the NIFTY has given nominal returns. However, sectors such as pharma and FMCG have better returns. The auto segment has given the best returns but it was primarily because of hammering last year. As far as individual stocks are concerned in Nifty, those that have given greater than 25 per cent returns are Sun Pharma (49 per cent), ITC (41 per cent), Hindustan Unilever (27 per cent). These stocks are from defensive sectors such as pharma and FMCG. The worst performers have been realty sector stocks such as DLF (minus 24 per cent), Unitech (minus 58 per cent), IDFC (minus 27 per cent), Maruti(minus 15 per cent), etc. With the impact of all the hikes yet to take place, investors may position their portfolio with less of interest rate-sensitive stocks. However, that should not make them completely disinvested from these stocks , as these may give bumper returns later. Having a proper balance of the stocks will help optimise returns.

BS

Yet another 25bps rate hike on July 26, says CNBC-TV18 poll

Industrial production numbers were down to 5.6% in May; corporate results are showing telltale evidence of falling sales and margins. Falling margins indicate an inability of producers to pass on prices. And yet on the other hand inflation remains high at 9.4% and is set to go higher if producers pass on the fuel price hikes. The Reserve Bank of India (RBI) faces an ugly contradiction-slowing growth and rising inflation. So what's the market expecting it will do on July 26, in its credit policy? CNBC-TV18's Gopika Gopakumar and Vidhi Godiawala give a lowdown. RBI Governor is expected to continue his anti-inflationary stance in the first quarter monetary policy review on July 26. 85% of the respondents polled by CNBC-TV18 expect RBI to hike the repo rate by 25 basis points, 15% say the RBI will acknowledge slow growth and pause its tightening cycle and a small minority argue there is a case of a 50 bps repo rate hike.  Leif Eskesen, chief economist, ASEAN and India, HSBC, said, "We think there is a case for 50 bps in the next policy meeting but we do think the RBI will move by 25bps. They will also look at what's happening globally that will temper their degree of aggressiveness." While the July hike is expected by a high majority, opinion is divided on what thereafter. 55% of those polled expect RBI to hike the repo rate by another 25 basis points after the July 26 rate hike. 45% said they don't expect RBI to increase rates further in FY12.  Rana Kapoor, founder, managing director and chief executive officer, Yes Bank, said, "We are probably at a peak level in terms of interest rates. While there may be some correction and calibration in repo rates as the market is generally expecting, the damage on industrial production and industrial growth, on output and structural implications are severe now of any further interest rate hikes. We are probably at the very end of increasing cycle." Rate hikes will mean slower growth, but 75% of those polled expect RBI to retain its gross domestic product growth forecast at 8%, 25% see the central bank scaling down its growth forecast between 7.5-8%. As for inflation, 65% said RBI will leave its March end inflation forecast unchanged at 6%. 35% expect RBI to raise its inflation forecast above 6%. A majority (65%) doesn't expect banks to increase lending or deposit rates immediately if the RBI hikes the repo rate on July 26. 35% see banks passing on costs to their borrowers. Bankers will decide post the policy announcement and their decision will depend on their bank's cost of funds.  Arun Kaul, chairman and managing director of UCO Bank, said, "We'll have to wait and see how liquidity shapes up. If my cost of fund moves up I have no option but to pass it on to my customer." While, MV Nair, chairman and managing director of Union Bank, said sees no reason why deposit rates should be raised at this point. "When you have positive return to the depositors, the deposit growth is expected to be higher. So to that extent there is no need why it should take place. Whether to pass on to borrowers or not is a call that we may have to take post policy because it gets linked to the deposit costs," he explained. Majority of the economists and bankers say RBI's tone will continue to remain hawkish and inflation control will precede its policy stance. But there is a small group which believes the central bank will prepare the market for an exit from its tightening regime. This minority feels the regulator will give growth its importance, acknowledge global uncertainties and the possibilities of its negative spillover effects.

Watch the video........ 

Bank staff, officers to strike work on Aug 5

Around ten lakh employees from all nationalized government banks, domestic and international private banks, cooperative banks and regional rural banks will strike work on August 5. A release from The Maharashtra State Bank Employees Federation says that the strike is not for any financial demands but for pending demands of the employees. The federation - demands not to privatize public sector (nationalized) banks, not to reduce central government’s share capital in public sector banks, not to take World Bank loans for fulfilling capital requirements in public sector banks, opposes merger of five banks in the SBI group with SBI. The federation also says that it would not be in public interest to allow uncontrolled access to foreign capital in banking industry and has demands not to cancel Section 12 ( 2) of the Banking Regulation Act because of which foreign banks are bound to takeover the private banking sector.

FPJ

central bank policies to underpin shares

The Reserve Bank of India (RBI) has had a tough job on its hands, wielding monetary tools to slam down on inflation that was largely caused by supply bottlenecks. It is widely tipped to raise rates by a quarter of a percentage point this week, which would be its eleventh increase — the most by any central bank — in 16 months.......

Read.................