Abha Thorat is the COO of UK-India Business Council (UKIBC). She grew up in Mumbai watching her banker mother, Usha Thorat, storm the bastion of male domination, the Reserve Bank of India (RBI).
The very purpose of VITALINFO is to provide a platform for wider dissemination of updated information related to and happening of events in and around RBI.
Saturday, August 27, 2011
Minister frowns at unyielding bankers
HYDERABAD: Revenue minister N Raghuveera Reddy on Friday threatened to walk out of the 175th state-level bankers' meeting after SBI officials failed to give an assurance on financing licensed cultivators without insisting for a notarized affidavit, even as chief minister N Kiran Kumar Reddy urged bankers to bail out farmers who have declared a crop holiday in 13 mandals. Insisting that bankers should pass a resolution to the effect that a notarized affidavit was not mandatory to extend finance to licensed cultivators, the minister expressed serious displeasure at the meager number of loan eligibility cards (LECs) issued to tenant farmers. "According to the preliminary estimate of 30 lakh LECs in the state arrived at after a series of meetings involving bankers for five months, only 5.45 lakh farmers took LECs and banks have received applications from a meager 91,678 LEC holders. I strongly feel there is lot of communication gap between bankers and field level officers," he pointed out. Even RBI Regional Director A.S.Rao asked banks to focus more on lending to agriculture saying, "The disbursal of loans to farmers in the state is far from satisfactory." Meanwhile, bankers called for concerted efforts from the state government saying, "The issue of recovery continues to haunt banks in the state. As of June 2011, it is observed that overdues are mounting up under crop loans, agriculture term loans, SHG loans, loans under Indiramma, Vambay, and Rajiv Gruhakalpa etc. Banks need government's urgent help to get recoveries which will motivate our managers to lend more under different schemes." The declaration of crop holiday by farmers will have an adverse impact on recovery of loans," said SLBC president R Ramachandran.
TOI
RBI warns of dark clouds on growth horizon
Mumbai Indicating at tough days ahead, the Reserve Bank of India (RBI) on Thursday warned that global uncertainties, high oil and commodity prices, persistent inflationary pressures, rising input costs, rise in cost of capital due to monetary tightening and slow project execution are weighing on the country’s economic growth. The RBI also cautioned against the dangers of “accepting elevated inflation level as the new normal” in the face of “nominal rigidities and price stickiness”. “The high and persistent inflation over the last two years has brought to the fore the limitation in arresting inflation in absence of adequate supply response. However, monetary policy still has an important role to play in curbing the second round effects of supply-led inflation,” the RBI said in its Annual Report for 2010-11, hinting at the possibility of further tightening of the monetary policy. “Though global commodity prices appear to have plateaued, inflation is likely to be elevated in near term and fall only towards the later part of the year to about 7 per cent as monetary transmission works through further,” RBI Deputy Governor Subir Gokarn said while releasing the report. Should the global recovery weaken, commodity prices may decline further, which should have a salutary impact on domestic inflation, he said. Gokarn said growth “prospects for the year 2011-12 seem to be relatively subdued compared with the previous year”. Global uncertainty, sticky inflation, hardening interest rates and high base, especially for agriculture, could moderate growth in 2011-12, he said. After above-trend growth during 2010-11, growth is expected to decelerate but remain close to the trend of about 8 per cent in 2011-12. If global financial problems amplify, it would impart a downward bias to the growth projection of around 8 per cent indicated in the Monetary Policy. “The US Fed has indicated that it will pursue its near zero rate policy at least till mid-2013. It has also hinted at another dose of quantitative easing. This stance may keep commodity prices elevated,” the report said. If global oil prices stay at current level, increase in prices of administered oil products will become necessary. On current assessment, the fiscal deficit in 2011-12 is likely to overshoot the budgeted projections. “If the economy slows down beyond what is currently anticipated, the resultant revenue erosion could magnify the fiscal slippage. At the same time, the fiscal space to support any counter-cyclical policies is more limited than what existed at the time of the global crisis of 2008,” Gokarn said. There are risks that fiscal and current account deficits could increase if the global economic problems deepen. Crop prospects remain good, though on a high base the growth is likely to turn out to be less than last year. Downside risks to the industrial growth in FY’12 may arise from falling business confidence.
Expressbuzz
Banks, UIDAI to deploy 14 lakh micro-ATMs
MUMBAI: The Unique Identification Authority of India (UIDAI) is working with the Indian Banks' Association to create a network of 14 lakh micro ATMs across the country. While the banks will authorize the transaction, the authentication will be done by UIDAI by biometric association with its database. The UIDAI is also considering giving unbanked citizens the option to receive a pre-paid payment card issued by banks which can be used for channeling payments from government schemes, including National Rural Employment Guarantee Act. "The plan is to have at least two micro-ATMs in every village, which means that there will have to be at least 14 lakh of them," said A P Singh, deputy director-general, UIDAI, while speaking at a Prepaid International Forum event on Thursday. He said that every UIDAI registrant is presently given the option to open a bank account. "We plan to give them the additional option to receive a payment card which can be used for electronic transactions," he said. According to Singh, the cards could be used for transactions in Aadhaar-enabled micro ATMs. The micro-ATMs will be more like point-of-sales terminals which will read cards and communicate with the bank's core banking system and the Aadhaar biometric database. According to Kusal Roy, head of cards and personal loans at ICICI Bank, the pre-paid cards could be used for micro-payment transactions and would have a different charge structure compared to regular credit and debit cards. The micro-ATMs, which are to be deployed by banks, will be manned by business correspondents appointed by banks. These business correspondents will act as mini bank branches by accepting deposits, enabling withdrawals, fund transfer from Aadhaar-to-Aadhaar accounts and providing statement of transactions. The connectivity will be provided by the Aadhaar-enabled payment system (AEPS) - a new electronic payment network jointly promoted by the National Payment Corporation of India with the UIDAI. Over 60 banks have registered to be part of this network. Speaking at a FICCI-IBA summit on Thursday, RBI Deputy Governor HR Khan had said that NPCI has been advised to introduce RuPay cards under the Aadhaar Enabled Payment System (AEPS). "Four banks have started using the RuPay card. These include: Kashi Gomati Gramin Bank, Bank of India DhanAdhar Card, The Gopinath Patil Parsik Janata Sahkari Bank Ltd, and NKGSB Urban Co Op Bank Ltd," UIDAI, along with NPCI, has already piloted Aadhaar-enabled Payment System in Jharkhand. Basic transactions permissible over these accounts include cash deposit, cash withdrawal, balance enquiry, and inter-bank money transfer. This system also envisages creation of an Aadhaar-enabled payment bridge which would facilitate direct disbursement of government benefits to the beneficiary by credit to their bank accounts using Aadhaar.
RBI move to help cash flow in emergencies
To ensure that ATMs do not run dry during a banking strike or during a natural calamity, RBI has said that it will open a cash window during such events. To avail of cash, banks will have to authorize RBI in the form of a standing instruction to debit their current accounts with RBI for handing over the cash to the outsourced cash handling agency appointed by them. RBI will allow one bank to withdraw a maximum of Rs 10 crore, but if additional cash is required a bank may approach RBI more than once in a day.
TOI
Banks may replenish ATMs by RBI borrowings in emergencies
Mumbai: The Reserve Bank of India on Friday said banks can now replenish their automated teller machines (ATMs) with cash by borrowing up to 100 million rupees at one go from the central bank if a banking sector strike or any natural calamity creates a situation where ATMs may run out of cash. “Depending upon the need for cash to be replenished in the ATMs, a bank may avail of this withdrawal facility more than once during the working hours on a particular day,” the central bank said in a notification posted on its website.
Firstpost
Tapping electronic banking value at the bottom of the pyramid
Addressing the FICCI-IBA Conference on Global Banking, H.R.Khan, Deputy Governor of Reserve Bank of India said that financial inclusion should be seen not only as a social responsibility but also as a potential business model because of the huge untapped market that it seeks to bring into the fold of banking services. Highlighting that India has the highest number of households (approximately 145 million) who are excluded from banking, he asked banks to devise appropriate strategies for tapping the banking value that is represented by these large number of households at the bottom of the pyramid. Mr. Khan discussed financial inclusion enablers such as mobile banking, Aadhaar enabled payment systems, liberalisation of BC guidelines etc, which when deployed with a sound business plan can generate value not only to the customers but also to the banks. Drawing attention to the recent RBI issued “Operational Guidelines on implementation of Electronic Benefit Transfer (EBT) and its convergence with Financial Inclusion Plan (FIP)”, he said that these guidelines are expected to give a fillip to financial inclusion efforts and lead to a scalable and sustainable financial inclusion model. As a part of the e-governance initiative to move towards a paperless funds transfer system, Union Finance Ministry has advised all state owned banks and financial institutions to make payments only through electronic transfers and not through cheques from 1st September 2011. Further, the Deputy Governor expressed hope that the liberalized Business Correspondent (BC) guidelines which allows Mobile Network Operators to become BCs, will result in expansion of the banking coverage and along with technology provide a sustainable ecosystem for the unbanked and financially excluded segments of the population to be part of formal banking network. In Mr. Khan’s opinion, Aadhaar which will provide a unique identification valid through the country when integrated with payment system application has the potential to shape the payment system future in the country. “The unique identity number (Aadhaar) is poised to be an important driver of financial inclusion initiatives”, he said. He discussed about the Aadhaar enabled payment system (AEPS) which is a bank led model that allows online financial inclusion transaction at PoS (MicroATM using handheld device) through the business correspondent of a bank using the Aadhaar authentication. At present AEPS service can be availed by customers at their respective bank business correspondent outlets. AEPS will support four types of banking services viz. balance enquiry, cash withdrawal, cash deposit and Aadhaar to Aadhaar funds transfers. UIDAI along with NPCI has piloted Aadhaar enabled Payment System in Jharkhand. As per the report on the E-commerce released by the Internet and mobile Association of India (IAMAI), the internet commerce industry in India is expected to INR 46,520 crores by end of 2011. “Banks and payment system operators could leverage on the huge potential of e-commerce and m-commerce”, he said.
http://www.microfinancefocus.com/tapping-electronic-banking-value-bottom-pyramidPaper money and plastic protests - Sunanda K Datta-Ray
Reports of the 25 paise coin’s demise and the expected birth of two-rupee, hundred-rupee and even thousand-rupee coins don’t trouble self-styled Gandhians crusading for financial rectitude in a blaze of publicity. But people who have to worry about the spiralling cost of everything, including Gandhi caps and an unending supply of freshly-laundered crisp white dhotis and kurtas, cannot ignore these warnings of bleak times ahead with money rapidly losing all value. A chazi, as we schoolboys called the four-anna coin, predecessor of the doomed 25 paise, bought a bottle of Rose and Thistle lemonade with the tantalising marble that no juggling could ever get out. It was a respectable sum to hand across the tuck shop counter or give the box-wallah in return for bright stamp-sized pictures that you dampened and pressed on your arm and, hey presto! you had a colourful tattoo. The chazi soared to grander heights. “A chavanni membership of the (Congress) party was a badge of honour,” an MP reminded Parliament recently. It also plumbed to abysmal depths. As I have written before in this column, some small boys from Burrabazar at a Republic Day parade burst out chanting “Chavanni! Chavanni!” when the Kolkata Police contingent, pot-bellied and panting, shambled past. It was their nickname for constables though I suspect the latter already demanded far more than 25 paise for the least favour. The 50-paise coin, equivalent of the old eight annas, is probably next on the hit list. It’s already gone in one sense for never, in the dozens of times I have flown out of Kolkata airport, has the newsagent in the terminal given me back the change when I have bought a Rs 2.50 newspaper. He always opens his drawer, gazes into it and murmurs, “Sorry but I don’t have 50 paise.” Never does he suggest taking two rupees. He always takes three, selling the paper at a premium. Others too play that game. I was glad when the fee for an hour’s parking was increased from Rs 7 to Rs 10 because that’s what the parking man outside the high court demanded anyway. He always rapped out a peremptory “10 rupees!” when you returned to your parked car. “I don’t keep change,” he retorted when you pointed out timidly that you had parked for a bare 25 minutes and a full hour’s charge was Rs 7. Now, a 10-rupee note will change hands without argument. Coins once meant gold, silver and copper. Devi Chaudhurani’s gold mohur in Bankim Chandra Chatterji’s eponymous novel, finds its equivalent in the gold sovereign that William Boot, the innocent hero of Evelyn Waugh’s Scoop, is done out of. Tradition decreed welcoming a bride or a newborn with a guinea. But it wasn’t all give; there was take too: the new son-in-law who paid obeisance to his mother-in-law with a guinea had to be blessed with two. But just as rupees, annas and pies became decimal paise, metal yielded to nickel-brass, cupro-nickel, aluminium-bronze and aluminium. Liberia was left moneyless when a bunch of Lebanese traders with tin trunks mopped up all the US dollar notes that were the country’s currency. India can always print and mint more but I have known children’s piggy banks painstakingly stuffed over the years with two, three and five paise coins going to waste. Five-rupee coins are becoming thinner and lighter. With legions at his beck and call and the mightiest in the land at his feet, Baburao Hazare should ask why our savings are steadily being robbed. Paper money was bad enough, and for that sleight of hand we must thank China whose seventh century Tang emperors first thought of taking the public for a ride. When Europe introduced notes in the 14th century, the holder was entitled to exchange them at the official bank for the equivalent value in gold or silver. Arvind Kejriwal, economist, erstwhile income-tax official, activist and Hazare’s right-hand man, should demand the meaning of “I promise to pay the bearer the sum of one hundred rupees” on a Rs 100 note. How will the governor of the Reserve Bank of India redeem his solemn word? By exchanging one 100-rupee note for another? We are being short-changed all the way. Self-proclaimed champions of justice aren’t interested in complaints that won’t make newspaper headlines, draw TV cameras or force the prime minister’s intercession. The really poor haven’t flocked to the Ramlila grounds. Just as protest fasting is for those who never go hungry, coins are for the poor… and numismatists.
BS
Rs 10 plastic notes to be introduced on trial basis: Govt
The government today said it has decided to introduce 100 crore polymer bank notes in denomination of Rs 10 on trial basis. It will be on field trial basis at five locations in the country, Minister of State for Finance Namo Narain Meena said in a written reply to the Lok Sabha. "A final decision will be taken depending on the results of the field trial," he said. The Reserve Bank had floated a global tender for introduction of 100 crore plastic currency in 2009. The polymer notes were first introduced in Australia to safeguard against counterfeiting of currency. Besides Australia, other countries which have introduced plastic notes include New Zealand, Papua New Guinea, Romania, Bermuda, Brunei and Vietnam.
Moneycontrol
Maharashtra woos SME clusters with fiscal sops
 |
| Dr Subir Gokarn (left), Deputy Governor, RBI, and Mr Chandrakant Salunkhe, President, SME Chamber of India, at the India SME Leadership Summit in Mumbai on Friday |
The Maharashtra government will offer a basket of fiscal benefits in terms of interest rate concessions and power tariffs to SME clusters, said Mr Sanjay Sethi, Secretary (Small & Medium Industries) & Development Commissioner (Industries), Government of Maharashtra. The India SME Leadership Summit on the occasion of its 17th foundation day focused on the need for technological innovation, financial and constructive policy support for the growth and development of the SME sector. The advantages of forming clusters of SME units were also discussed. Emphasising on the need to provide support mechanism to the SMEs, Mr Subir Gokarn, Deputy Governor, RBI said that the entrepreneurs and the government are important stake-holders in this sector and they play a crucial role in making this sector competitive and viable. “Financial problems faced by the SME sector need to be addressed. Banks providing financial assistance to the SMEs need to balance risk with lending activities,” he added. Speaking on the initiatives already taken to promote the sector, Mr M. Narendra, Chairman of Indian Overseas Bank said that the bank had disbursed Rs 14,000 crore to SMEs in the last fiscal. “We have opened exclusive SME branches and empowered managers to lend to SMEs.” He also spoke about the importance of credit-rating for the SME sector. With respect to clusters Mr Gokarn said that organic clusters inherently have huge benefits in the marketing, production and environmental space as they operate collectively and get the benefits of economies of scale. Lack of technological innovation was another area of concern for the SME sector. Non-availability of technology will hamper the research and development activities of the SMEs, said experts. One of the initiatives in this direction – iON — is an information technology solution created by TCS for the small and medium enterprises. “iON is a pre-configured hardware, networking and software solution in the third-generation cloud-computing technology. It's a pay-per-use revenue model where the rent is collected on a monthly basis,” said Mr Pankaj Baliga, Vice-President of Tata Consultancy Services.
HBL
'Banks should lend to SMEs with caution'
The Reserve Bank of India (RBI) has asked banks to develop effective risk management controls for lending to small scale enterprises (SME). The regulator said lending to the SME sector was extremely crucial for economic growth, but a policy change is required to facilitate lending so that the risk is minimised. “Banks lending to SMEs will have to take the risk into account. They should balance expansion of credit to SMEs with increase in risk,” said Subir Gokarn, deputy governor, RBI, during a SME summit. The central bank is of the view that the risk increases as banks move down the hierarchy and hence there was a need of an effective risk mitigation system in place. The Deputy Governor also urged for actions that would make the small scale enterprises commercially viable and more competitive. Banks have been actively lending to small scale enterprises. According to RBI data, total deployment of gross bank credit by the micro and small sector as on June 17, was Rs 2,334 crore, against Rs 2,291 crore on March 25. Although, lending to the SME sector has been on a rise, the high non-performing assets have been a cause for concern. According to a report by the Boston Consultancy Group (BCG), the NPAs in the MSME sector were to an extent of 4.24 per cent as of March, 2011.
BS
RBI: To Closely Monitor Twin Deficits
The Reserve Bank of India (RBI) has sought the close monitoring of the twin deficits, the fiscal deficit and the current account deficits as there are chances of these widening, following the slide of the global economy and its spillover to the domestic economy. In the baseline scenario, the CAD would remain at sustainable levels in 2011-12, the central bank said. Estimates of sustainable CAD suggest a threshold of 2.7-3.0% of GDP. However, prospects for external sector for 2011-12 remain somewhat uncertain as global uncertainties could impinge on commodity prices and exchange rate movements. India's balance of payments improved to 2.6% of GDP during 2010-11 from 2.8% during the preceding year led by a pick-up in exports during the second half and a higher invisibles surplus. Thus, India's CAD is within level of sustainable CAD, the central bank pointed out.. Capital flows to India improved during 2010-11, reflecting the positive perception of India's growth prospects, RBI said. The composition and volatility of capital flows posed some concern. Meanwhile, as regards capital flows, the impact is more difficult to gauge, the central bank added. Capital flows could surge or diminish, depending upon the degree of risk aversion. If global crisis turns deep, capital flows are more likely to moderate. On the other hand, capital flows to India could increase in spells on relative returns basis and due to large interest differentials, RBI stated. Financing of CAD for 2011-12 may not pose a problem unless the public debt fragilities in the Euro Zone and the growth slowdown in the US significantly impact capital flows. On the whole, the BoP situation remains manageable, though it necessitates continuous monitoring due to the global uncertainties, RBI added. Meanwhile, the fiscal deficit in 2011-12 is likely to overshoot the budgeted projections, stated the RBI in its annual report in the context of weakening global economy and the likelihood of some spillovers to the domestic economy. The central bank said that if the economy slows down beyond what is currently anticipated, the resultant revenue erosion could magnify the fiscal slippage. At the same time, the fiscal space to support any counter-cyclical policies is more limited than what existed at the time of the global crisis of 2008, RBI added.
IIFL
RBI asks old private banks to improve governance
MUMBAI: The Reserve Bank of India has asked select old generation private sector banks to improve governance standards, a person familiar with the matter told ET. "RBI has asked banks to improve governance structure to ensure that there is minimum intervention of the board in the day-to-day operation," the person said. Discussion on the issue of governance between the banking regulator and select bank managements took place at the central bank's quarterly business review meeting, bankers said. The advisory comes in the wake of an ongoing conflict between shareholders of private sector Tamilnad Mercantile Bank and some new investors in the bank. Tuticorin-based TMB, which was floated in 1921 by the Nadar community, has been under the regulatory glare after a set of Indian and foreign investors acquired 24.93% in the lender. The central bank is also concerned with the rising expense ratio in a few old generation private banks and their ability to raise capital to fund growth, said a banker who was present in the meeting. AK Jagannathan, MD and CEO of TMB, said: "RBI wants us to list the banka¦We do not need to raise fresh capital for the next three years. Our capital adequacy ratio is at 15.51%. However, listing would resolve impending shareholding issues." There are 15 old private banks in India, some of which have recently revamped their management teams and appointed chief executives from foreign banks. The newly-appointed leaders face challenges when it comes to recruitment of talent, expansion of business and migrating to market-related compensation structures. "The individuals who sit on the boards of these old private sector banks in non-executive posts are very community-driven (being part of a community)," said an executive from a global consulting firm. The manner in which the new managements and the boards of these banks want to achieve maximum shareholder value is not aligned, which creates conflict, he added. "These institutions are very attractive for a particular shareholder group to nominate amicable persons on the board," said the CEO of an old private bank. RBI governor D Subbarao recently emphasised the need to strengthen corporate governance. He stressed on the need to address critical questions such as whether the voice of independent directors is always independent.
ET
Govt trying best to tame inflation, says Minister
Both the government and Reserve Bank of India (RBI) have taken a number of steps to address the issue of high inflation, including the reduction of import duty on essential commodities, Parliament was informed today. "The government is aware that inflation hurts the lower income group of society. Measures taken to contain prices of essential commodities include -- import prices reduced to zero on rice, wheat pulses, edible oils (crude) and onions...," Minister of State for Finance Namo Narain Meena said in a written reply to a question in the Lok Sabha. "As part of the monetary policy review stance, the RBI has taken suitable steps with 11 consecutive increases in policy rates and related measures to moderate demand to levels consistent with the capacity of the economy to maintain its growth without provoking price rise," he said.
Moneycontrol
SOS to govt: RBI can’t fix economy, you have to
SOS to the government: Stop dithering and placing the burden of reviving economic growth on the central bank. If there was ever a time to introduce a fresh wave of high-impact economic reforms, it’s now. Especially since the central bank has very little leeway to do anything itself. The slowdown signs were already visible to several investors; now even the Reserve Bank of India (RBI) has officially acknowledged them and warned that economic growth could slow even further in the coming months, even as inflation remains persistently high. In its annual report released Thursday, the central bank said growth could likely moderate to around the estimated 8 percent in the 12 months to March 2012, but warned there was a “downward bias” if global uncertainties continued.Inflation, the big headache for the economy, refuses to go away, despite the central bank administering repeated – and increasingly strong — doses of interest rate hikes. Even after 11 interest rates increases since March 2010, inflation remains stubbornly above 9 percent. The central bank expects high prices to continue until the second half of the financial year (April-March), when it expects prices to cool to about 7 percent.
High interest rates have chipped away at economic growth. Industrial growth has slackened, while consumer demand has slipped, which, in turn, has diminished appetite for corporate investment and expansion. In addition, companies have been batting high input costs caused by high global commodity prices.Not surprisingly, in the past few months, several foreign and local brokerages have downgraded corporate earnings and benchmark index estimates for this financial year. The latest was CLSA, which cuts its year-end Sensex target by 7 percent to 18,200 on Thursday. “While the sharp correction in the market may suggest attractive valuations, we note the pace of corporate earnings downgrades has intensified in the recent results season,” said CLSA in its report released this week. “We lower 12 month Sensex target to 18,200 as we lower the target multiple to 13x to factor in the earnings downgrade risk,” the Swiss brokerage noted in a strategy report. According to Bloomberg data, earnings for 46 percent of Sensex companies missed analyst estimates in the June-ending quarter. That compares with 33 percent in the previous quarter. The argument that the Indian economy is insulated from the global turmoil (a fading US recovery and spreading debt contagion in Europe) is also flawed. In recent years, several Indian companies have been generating an increasing proportion of income from overseas operations. In fact, more than half of the Sensex’s earnings in the year ending March 2012 is expected to be generated from overseas. Reliance Industries, an index constituent, for instance, gets about 60 percent of its revenue from international sales, while Tata Motors gets 53 percent. Software exporter Infosys gets 97 percent of its income from international operations. So to argue that Indian companies will not be affected by the ongoing global economic turmoil is simply wrong. Another worrying thing: so far, most corporate earnings downgrades have occurred taking into account domestic factors, such as high input prices, high interest rates and slowing consumer demand. Now, further downgrades in earnings could arise because of the “global” operations of Indian companies, according to some experts.Meanwhile, exports, after having a good run in the past few months, are predicted to decline as well.So, to sum up, the economy is fighting high prices, high interest rates, slowing industrial growth, faltering exports, and growing global economic uncertainty all at the same time. Plus, the impasse between Team Anna and the government (which, hopefully, might get resolved soon) has put the spotlight on rampant corruption in the country, further dampening investor sentiment. Yet, the government continues to insist that our economy is ‘robust’ and that the growth story remains intact.
Time for action
Unfortunately, that puts pressure on the RBI to “do something” to fix the economy, which it simply cannot do at this time. Recent statements by top officials suggest that fighting inflation remains the bank’s key priority, even at the risk of cooling growth. For now, the RBI doesn’t mind slower growth because subsiding domestic demand will help in controlling inflation. The central bank might, at best, be able to hold off on any further rate hikes after raising rates one last time on 16 September, but that will do nothing to spur growth. Besides, growth is not solely dependent on interest rate hikes or cuts: it also requires a good policy mix to encourage investment in various sectors. After all, high demand is not the only trigger for inflation; a lack of supply can also fuel high prices, especially in food products. While the RBI can tackle demand levels through monetary policy; the economy also sorely needs investments in agriculture and other areas to boost supplies of different goods. That requires the government to provide attractive and intelligent investment and tax policies. Given that the RBI has done its part to cool demand, the government should now focus on improving supply. Making soothing statements on the economy simply don’t cut it anymore. A second wave of liberalisation, 1990-91 style, could influence positive investor sentiment and potentially drive growth for the long term, and allow us to take charge of our own economic destiny. The alternative, of course, is to whine and complain about the external environment and blame the ‘foreign hand’ for our sluggish growth – and do nothing.
What will the government choose?
Firstpost
Wait For New Bank Licences Just Got Longer
Corporates will have to wait longer for bank licences as RBI raises red flag over self-dealing
For big conglomerates and corporates hoping to get into the banking business, the wait just got longer. Corporates like Tatas, Birlas, the Anil Ambani group, Religare, Bajaj and Muthoot group among others, will have to wait longer for a banking licence after the RBI governor D. Subbarao raised a reg flag over handing out the much-anticipated licences. This came just days ahead of the scheduled release by RBI of the draft proposal on the entry of a new set of private banks into India’s Rs 64-trillion banking industry. A discussion paper was floated last August and the RBI has received a lot of feedback. The Governor further said the RBI had already sent the draft amendment to the government, which was working on it. While the guidelines will be issued shortly, the amendment to the Banking Regulation Act is uncertain. Subbarao said though admittedly the strongest reason to allow corporates to get into banking was their easy access to large capital, the issue of 'self-dealing'— the fear that corporates will use the bank as a private pool of readily available funds — made him raise the red flag. For example, the Banking Regulation Act expressly prohibits banks from lending to directors on the board and to entities in which they are interested. Regulations also prohibit lending to relatives of directors without the prior approval or knowledge of the board. Directors, who are directly or indirectly interested in any loan proposal, are required to disclose such interest and to refrain from participating in the discussion on the proposal. "There are still gaps," the governor said while addressing the Ficci-IBA summit in Mumbai earlier this week. This could be the first time the RBI has openly expressed its apprehensions about handing out new licences. Another apprehension that was raised during the public debate on the Discussion Paper was that it is not easy for supervisors to prevent or detect self-dealing because banks can hide related party lending behind complex company structures or through lending to suppliers of the promoters and their group companies, Subbarao said. There is a need for changes in statutes and regulations to address these concerns, he said. Although most bankers maintain that bringing in new banks will provide more competition to the PSU banks to up their ante when it comes to servicing, it remains to be seen how the corporates themselves react to this admission from the country's top most banker himself.
RBI may set up a corpus of LIBOR linked foreign currency loans
The Federation of Indian Export Organisations (FIEO) wants the Reserve Bank of India to set up a corpus of LIBOR linked foreign currency loan and provide interest subvention to micro, small and medium enterprises (MSMEs) to ensure that export continues to grow.....
Read...........
Wockhardt sniffs Fema violation by Sun Pharma
Wockhardt, through its banker Standard Chartered (StanChart), has told the Reserve Bank of India (RBI) about a possible violation of the Foreign Exchange Management Act (Fema) by Sun Pharma — an allegation denied by the latter.....
Good suggestion
The author's suggestion in “Right time for RBI to sell gold” (Business Line, August 24) is a great idea. I remember during year 1999-2001, many central banks were selling gold. The price of gold went down from around $400/ounce to $300/ounce between 1994 and 2001. I don't think the price will hold in the $1700-$1800 level for many years, as gold production is expected to go up. Plus, black market gold will flood the market in the next 3-5 years at current high price levels.
Murthy (BS)
HC moved for RBI probe into alleged unfair MFI practices
A petition has been filed in the Madras High Court Bench here seeking a direction to Reserve Bank of India to investigate into allegations that Micro Financing Institutions (MFIs) in Tamil Nadu were indulging in unfair and illegal practices in disbursement of funds to women members of self-help groups (SHGs). The petition by All-India Democratic Women's Association state General Secretary U Vasuki also wanted the RBI to evolve a redressal mechanism in order to enable the affected SHG members get justice. She also urged the court to direct the police to register complaints made by SHGs against the MFIs who indulged in charging exhorbitant rate of interest and resorted to unfair and illegal trade practices under Tamilnadu Prohibition of Charging Exhorbitant Interest Act 2003. Vasuki sumbitted that SHG women all over the state were caught in a "death/debt trap" after the banks, playing primary role in successful functioning of the groups by providing funds, slowly started disbursing the loans through legally formed institutions in the form of NGOs. However, a new breed of shylockian and profiteering companies have started storming the SHG market under the banner of MFIs. The original concept of micro finance which aimed at social mobilisation of poor, skill development and capital formation had been had been destroyed now, she submitted.
Moneycontrol
It is a sellers' market, yet
....Damodaran Committee recommendations may provide the much needed relief to home loan borrowers.....
Friday, August 26, 2011
Comparing RBI’s monetary policy with Fed, Bank of England and ECB..
This is a wow speech from Deepak Mohanty of RBI. It is worth a Phd theses by itself.. The speech compares the operating framework of monetary policy of three top central banks with RBI. We usually look at monetary policy as a policy which changes rates to manage inflation. That is surely the purpose but mechanics of implementing the policy differ vastly across central banks. This mechanics is called the operating framework which includes liquidity facilities, bank reserves, ways to change policy rates etc.
RBI: Inflation remains high, could hurt growth
The Reserve Bank of India (RBI) warned on Thursday against accepting high inflation as the "new normal," adding that the outlook for the country's industrial sector remained uncertain amid high input costs and weak global conditions. In its annual report for 2010/11, the RBI added that despite the recent correction in global oil and commodity prices, inflation remained high and could hurt growth. The RBI, which has raised interest rates 11 times since March 2010 but still faces inflation above 9 percent, said becoming resigned to high inflation could push up inflationary expectations in the long term and ultimately lead to a hard landing for Asia's third-largest economy. The RBI expects inflation to remain high in the near term but start easing in the October-December period, although its inflation forecasts have consistently proven to be optimistic over the past year. "As inflation starts going down and remains within a negative trajectory, which is what we are anticipating post-November-December, that changes the overall perspective on the growth-inflation balance," Subir Gokarn, the bank's deputy governor, said, commenting on the report. While a U.S. credit rating downgrade this month has raised global growth worries, RBI Governor Duvvuri Subbarao has warned that upside risks to India's inflation were more pressing concerns for the short term, and it was too soon to change the central bank's anti-inflationary policy stance. Still, the RBI report said a further slowdown in global growth could put downward pressure on India's growth projection, which the RBI estimates at 8 percent for the fiscal year that ends in March. "The outlook for the industrial sector in 2011/12 remains uncertain, with the downside risks outweighing the upside risks," the RBI said. The Reserve Bank also said India needed to raise fuel prices further, to contain the burden of subsidies if global oil prices stay at current levels. India raised subsidised fuel prices in June for the first time in a year. The RBI also said that though India had adequate foreign exchange reserves to handle external pressures, its current account deficit could be under pressure if the global economy weakens. India's current account deficit improved to 2.6 percent in 2010/11 from 2.8 percent the previous year and is expected to be within 3 percent in the current fiscal year of 2011/12.
Reuters
JV inked to indigenize banknotes production
The Reserve Bank of India (RBI) has started a joint venture (JV) with a banknote security printing agency in Mysore to indigenize currency note production even as there is a significant increase in detection of counterfeit notes in banks. RBI is also conducting a pilot project to introduce plastic notes of Rs.10 in select locations even as a study on the possible environmental impact of such a move is being done. The JV between Bharatiya Reserve Bank Note Mudran Pvt. Ltd and Security Printing and Minting Corp. of India Ltd will seek indigenization of paper, ink and other raw materials for production of banknotes. The facility will have an annual capacity of 6,000 tonnes to start with, RBI said in its annual report, released on Thursday. India imports the raw materials for its currency notes. In 2010-11, the security printing charges for banknotes decreased by 13.7%, or Rs.378 crore, mainly on account of a decrease in the supply of banknotes in certain denominations, RBI said. The cost of security printing in 2010-11 stood at Rs.2,376 crore compared with Rs.2,754 crore a year earlier, RBI data showed. According to the annual report, the number of fake notes detected in the system has increased significantly in fiscal 2011 over previous years. In 2010-11, 435,607 fake notes were detected, compared with 401,476 in 2009-10 and 398,111 a year before that. About 90% of these notes were detected at banks and the rest in RBI. “Counterfeit banknotes detected during the year were higher in magnitude on account of heightened awareness among banks and increased use of note-sorting machines,” RBI said. All currency chest branches of banks have such machines and banks are required to issue notes in the denomination of Rs.100 and above after checking them through such machines. Till April, banks had installed 4,091 sorting machines and also arranged to issue machine-processed notes for another 1,823 branches. Notes in the denomination of Rs.100 and above are required to be sorted through machines in branches before reissue to the public. Apart from adopting other steps to check “the menace of counterfeit banknotes”, RBI also launched a campaign to educate the public about the security features of banknotes. The advertisement campaign is run on Doordarshan channel. “Future plans include campaigns through various media (such as) other TV channels, radio, newspapers, etc.,” the annual report said. However, a 9 August Mint story, quoting a confidential government report, found flaw in RBI estimates of counterfeit currencies. A white paper on the status of fake Indian currency notes, prepared jointly by the Intelligence Bureau, Research and Analysis Wing, Directorate of Revenue Intelligence and the Central Bureau of Investigation, had found that four in every 1,000 currency notes in circulation in India are fake, amounting to as much as Rs.3,200 crore in 2010. The report is confidential and is a first-ever attempt to estimate the quantum of counterfeit notes in India. Mint has reviewed a copy of the report that was submitted to the government in June. Fake currency comprises 0.0004-0.0012% of banknotes in circulation, it cites RBI as saying, which is four in every one million, much lower than the white paper estimate.
Mint
Two banks select FRSGlobal to meet the Reserve Bank of India’s automated reporting obligation
Regulatory reporting solution chosen to enable automated dataflow directly from the banks to the regulator in time for the August deadline. FRSGlobal, part of Wolters Kluwer Financial Services, a leading worldwide provider of compliance and risk management solutions for the financial services industry, today announced that the Indian arms of two major global banks’ have opted for its regulatory reporting solution in order to help them meet the Reserve Bank of India’s (RBI) requirements for automated reporting. The RBI announced its proposal to ensure accuracy and integrity of dataflow across the Indian banking system with the publication of its approach paper in November 2010. The first stage of this process requires banks to automate five returns by 31st August 2011. “The RBI has clearly outlined the steps banks in India need to follow in order to submit accurate and timely data without manual intervention,” said Prabhat Gupta, country manager at Wolters Kluwer Financial Services in India. “In order to fully automate the process for submission of returns, firms need an end-to-end solution in place that acquires, integrates, converts and submits the relevant data directly to the regulator. Our solution addresses all of these points, which is a key reason why two multinational banking groups have selected it to support them in meeting the impending requirements.” “With the first set of deadlines fast approaching, we are inevitably seeing an increase in the number of vendors entering the marketplace with their various offerings,” commented Steve Thurley, vice president of Asia Pacific and Japan, Wolters Kluwer Financial Services. “What sets us apart is that our established solution set is easily configured to address the points outlined by the RBI. We view this - twinned with the fact that two prestigious banking groups have chosen our solution – as further confirmation behind our business logic.”
http://www.bobsguide.com/guide/news/2011/Aug/25/two-banks-select-frsglobal-to-meet-the-reserve-bank-of-indias-automated-reporting-obligation.htmlTackling fiscal deficit
The recommendation of the author in “Right time for RBI to sell gold” (Business Line, August 24) is a pretty ordinary reaction of a bystander. Imagine, if you say that your land has gained 500 per cent in value in the last five years, any ordinary person will ask you to sell it and make a profit. They can give you 100 ways of investing the profits. The author also has done that. He has made simple calculations of book profit and tried to show his intelligence in proposing how the profits can be used. He forgets to understand that once used to contribute to reduce fiscal deficit in any particular year, it will give relief to that year only, while the gold is gone permanently. The theory is also against our traditional, conventional Indian rationale that we don't buy gold to make profit but to provide stability. Gold in the Reserve Bank of India's coffers is better than dollars or any relief for fiscal deficit.
Altaf Rahman (BS)
Reviewing the rules governing Employees Provident Fund, Public Provident Fund and National Savings Certificates is pointless
The government's decision to ask the Financial Sector Legislative Reforms Commission (FSLRC) to review the rules governing schemes like the Employees Provident Fund, the Public Provident Fund and National Savings Certificates is a classic case of putting the cart before the horse. Doubtless, many of the rules relating to these schemes have become outdated and need overhaul. But the basic problem is not with the rules per se as with the schemes themselves. These schemes were framed in an altogether different milieu, well before reform and financial liberalisation, and are an anachronism today. For instance, the rate of interest paid under the EPF and small savings schemes is unrelated to market rates. The Central Board of Trustees decides the rate of interest on PF balances while that on small savings is fixed by the government. The net result is when interest rates in the economy are falling, there is an implicit subsidy involved since the administered rate exceeds the market rate. And when rates are rising, as at present, those with money in small savings instruments end up getting less than the market rate. Administered interest rates interfere with the transmission of monetary signals, weakening the efficacy of monetary signals. It is more important to revamp the schemes and then frame new rules for the revamped schemes rather than expend time and energy framing new rules for schemes that need overhaul in the first place.
Several expert committees, starting with the R V Gupta committee back in the 1990s, the Y V Reddy committee, the Rakesh Mohan committee and most recently, one headed by Shyamala Gopinath, former deputy governor of the RBI, have looked at the small savings schemes and made their recommendations. They want to link the interest rate to market-determined rates. So, there's a blueprint in place. We need to translate it into action. However, since the beneficiaries of these schemes belong to the vocal middle class, governments have baulked at action, preferring to buy time instead. The decision to rope in the FSLRC seems to be yet another instance of that.
ET
Central Bank of India organises All India Rajbhasha meet
R K Dubey, Executive Director, Central Bank of India addressed the ' All India Rajbhasha Meet' organised by the bank as a part of its centenary year celebration, at Bhopal. Sanchalak Mantri, M P Rastrabhasha Prachar Samittee, Dr. Kailash Chandra Pant was honored at the occasion. Also present were GM, Rajbhasha, and Atul Agrawal. The function marked the launching of the official website of Tolic Bhopal. Speakers at the occasion included Sanjay Dwedi, Harish Singh Chouhan, Vijay Dutt Sridhar, U P Singh and Rakesh Khare. Also present at the occasion were S K Gupta; AGM, RBI, Rani Durve; Kavya Gosthi; Usha Jaiswal; Chandraprakash Jaiswal; Dinesh Prabhat and General Manager, Central Bank of India, Bhopal, Kumkum Gupta.
FPJ
Is it time to buy India? - Akash Prakash
The Reserve Bank of India (RBI) has been the most aggressive central bank in the world in normalising rates.....
Committee to re-examine the existing classification and suggest revised guidelines with regard to priority sector lending classification and related issues
The Reserve Bank of India has set up a Committee to re-examine the existing classification and suggest revised guidelines with regard to priority sector lending classification and related issues.
Shri M. V. Nair, CMD, Union Bank of India will chair the Committee. Other members of the Committee include,
- Dr.P.K.Mishra, IAS (Retd.), Former Secretary, Ministry of Agriculture and Co-operation, Government of India
- Smt. Nupur Mitra, ED, Indian Overseas Bank
- Smt. Sreya Guha, Director, Ministry of Finance, Department of Financial Services
- Shri Rajiv Sabharwal, Executive Director, ICICI Bank Ltd.
- Shri V. Ramakrishna Rao, Executive Director, NABARD
- Shri N.K.Maini, Deputy Managing Director, SIDBI
- Shri J K Sinha, Chief General Manager, State Bank of India
- Shri N C Khulbe, General Manager, Bank of India
- Shri Pranab.K.Roy, General Manager, United Bank of India
Dr. Deepali Pant Joshi, CGM-in -Charge, RBI, Rural Planning and Credit Department will be the Member Secretary. The Committee will submit its report in four months from the date of its first meeting.
An account for all, courtesy financial inclusion!
...When you consider that access to finance by the poor and vulnerable groups is a prerequisite for poverty reduction and social cohesion, it’s clear as to why the country's apex bank, the Reserve Bank of India, has charted out guidelines for all banks to bring in more people into the banking network. The RBI also pulled them up for the tardy job done so far, saying that they should not indulge in mere ‘lip service’ of financial inclusion. Also, for this initiative to work, the government needs to play a facilitating role in the process. ....
Read....................
Difficult year ahead for economy, cautions RBI
....“Should global recovery weaken, global commodity prices may decline further, which may have a positive effect on domestic inflation. But till that starts happening we should not anticipate and draw comfort from it,” said Dr Subir Gokarn, Deputy Governor, RBI......
Read.........
Household savings hit 13-year low; dip to 9.7% of GDP
MUMBAI: India's household savings, which have fuelled growth over the last few years, have dropped to below 10% of gross domestic product, or national income, for the first time in 13 years, as soaring inflation ate into disposable incomes. Net financial savings by Indians, which include deposits with banks and non-banking finance companies, cash, investment in stocks, debentures and small savings instruments besides life insurance, provident fund and pension funds, dipped to 9.7% of GDP in FY11 compared with 12.1% a year ago, as per data released by the Reserve Bank of India on Thursday. "This is because household financial liabilities have risen," according to Deepak Mohanty, Executive Director, RBI. The central bank has attributed the decline to slower growth in bank deposits and life insurance funds as well as an absolute decline in investment in equities, mainly driven by redemption of mutual fund units. The last time net financial savings as a percentage of GDP dipped below 10% was in 1997-98 when it fell to 9.6%. What has really impacted savings by individuals and small businesses is rising prices. Higher prices have forced them to spend more on daily expenses and also on loan repayments. Headline inflation was over 8% in FY11, which forced the RBI to raise rates aggressively, but the latest data confirms that rising prices have hurt households, with a higher share of disposable incomes being marked for spending rather than salting it away as has been the trend during the past few years. With negative returns on deposits in real terms because of high inflation and sharp slide in stocks, there could have been reallocation of financial savings to non-productive assets such as gold. Powered by an annual average growth of over 8% between 2004 and 2008-09, India's savings rate surged to over 30% of GDP, including both physical and financial assets. This fuelled investments in the economy, thus helping reduce dependence on foreign capital. India, along with China, had seen a secular trend in savings growth over the last decade with consumers saving more as incomes rose in keeping pace with economic growth. However, rising inflation has impacted this with the burden of higher loan repayments after several bouts of rate increases. The RBI, in its annual report released on Thursday, said households' financial liabilities have risen reflecting higher borrowings from commercial banks. Besides, persistently high inflation, relatively slower adjustment of bank deposit rates, and volatility in Indian equity markets - impacted by global macroeconomic uncertainties - affected the level and composition of net financial savings of the household sector, it said.
ET
RBI spikes finmin demand to ease infra funding rules
The Reserve Bank of India (RBI) has rejected a government proposal to relax single and group exposure norms on bank lending to infrastructure companies. The central bank has communicated to the finance ministry that current exposure norms on infrastructure financing in India are liberal enough. ...........
Reserve Bank's forecast for inflation
RBI Deputy Governor Subir Gokarn talks about the Reserve Bank's forecast for inflation in the coming months.....
CBS implementation: RRBs could get extension, says RBI
Reserve Bank Deputy Governor H.R.Khan today said Regional Rural Banks (RRBs) which are investing in Core Banking Solutions (CBS) can get an extension if there is a need to provide it. "If there is a need, we will look at that. If you tell from now that we we will give extension, the momentum would be lost. So, if there is a need, we shall look at an extension (of the September deadline)," he told reporters on the sidelines of a Ficci-IBA event here. An RBI committee had suggested that all RRBs move to the core banking platform by September 2011, a move that would help these banks undertake 90% of their business on this platform. The committee noted that difference in computerisation level among different RRBs would have to be taken into account for any technology upgrade. The panel had suggested an application service provider model for the CBS platform. The sponsor banks were given the option to choose their own service provider for their RRBs. Yesterday, during the same summit, National Bank for Agriculture & Rural Development (Nabard) chairman Prakash Bakshi had said he expected RRBs to miss the September deadline for implementing the CBS platform by three months. Bakshi had added that Nabard was providing an assistance of 40% from the Financial Inclusion Technology Fund to the RRBs to adopt the CBS platform.
HT
RBI to promote use of cashless payment system
Prokerala News
Subscribe to:
Posts (Atom)