'Allow systemically important NBFCs to float perpetual bonds'

Industry chamber Ficci today suggested that systematically important non-banking finance companies (NBFCs) should be allowed to raise funds through perpetual bonds. "Both deposit-taking systematically important and non-deposit taking systematically important NBFCs should be allowed to raise perpetual bonds," Ficci said in a statement. Currently, only non-deposit taking systematically important NBFCs are permitted to augment their capital in this way. Ficci has also suggested that the recommendation of the Usha Thorat committee fixing the period of default prior to classification of loans as non-performing assets (NPA) should be introduced in phased manner. The working group on 'Issues and Concerns in the NBFC Sector' headed by the former Deputy Governor had suggested a 90-day period of payment default for recognition of NPAs by NBFCs, in line with banks. At present, the period of default prior to classification of loans as NPAs in the case of NBFCs is higher, at 180 or 360 days, compared to 90 days for banks. A 90-day period for recognising the NPAs of NBFCs, in line with banks, would impose an avoidable provisioning burden on the NBFCs and could result in NBFCs deciding to opt for early foreclosures, depriving their borrowers of an income generating asset, it said. It is to be noted that the Thorat panel, in its report to the RBI in August, suggested tighter norms for NBFCs with the aim of strengthening the regulatory and supervisory framework for such lenders. Considering the experience of NBFCs in terms of foreclosure losses, the extant NPA norms should be followed, Ficci suggested. If at all this 90-day provisioning stipulation is to be introduced, it needs to be carried out in a phased manner, given that its impact on the industry will be very high, it added. The committee had also made a recommendation for income tax deduction of NPA provisions. The proposal to enhance NPA provisioning may be made effective only when income tax deductions for such provisions are allowed, Ficci said. In addition, it said loans in the form of NCDs should not be treated as capital market exposure.

BS

No information about illegal gold sale: RBI, Finance Ministry

NEW DELHI: Two key economic regulators of the country - Finance Ministry and Reserve Bank of India - do not have any information about the the consumption of unaccounted gold in the country. The RBI and the Finance Ministry have given a sworn affidavit before the Central Information Commission that they do not have any information about the illegal gold sale in the country. The affidavits were issued on the direction by the Information Commissioner Deepak Sandhu who asked them to file a sworn affidavit that they do not have any information about the consumption of unaccounted gold in the country. The direction of the transparency panel comes on an RTI application by activist S C Agrawal who sought to know sale and consumption of unaccounted gold in the country and related issues. The application filed before the Department of Revenue was transferred to a number of authorities within the Finance Ministry with each of them claiming that they do not have any information on the issue. No reply was furnished to the applicant. When the matter came before the CIC, Information Commissioner Deepak Sandhu directed the Finance Ministry, nodal ministry in such affairs, to file a sworn affidavit that no information was held by it.

ET

Inflated problem

Inflation has been a persistent problem for the Indian economy for nearly six years and worryingly for policy makers, Wholesale Price Index (WPI) inflation has been above nine percent for close to a year. Experts say that the price of commodities like food has risen steadily despite a string of good monsoons and record harvests. Sajjid Chinoy, India Economist at JP Morgan says the substantial price rises being experienced by rural India are a combination of a number of factors: supply bottlenecks, rising incomes, greater demand, and changing consumption habits. Critically, Professor Mahendra Dev, Director of the Indira Gandhi Institute of Development and Research points out that the cost of some food items in rural areas may be two or three times higher than official figures. WPI inflation dipped to 9.72 percent in September, down slightly from 9.78 percent in August. However, it still remains fiercely high and analysts in India widely anticipate that the Reserve Bank of India will, for the 13th consecutive time, lift interest rates later this month. The Reserve Bank of India says that it is mindful of a slow down in economic growth and the impact that the rising cost of borrowing is having on businesses and consumers alike. However India's Central Bank has also warned that it is not likely lower interest rates until inflation is brought under control. The timing of India's economic woes is not great. The country is struggling to keep growth and domestic consumption on track at a time when the world's major developed markets, and some of the country's biggest trading partners, are bracing for yet another slowdown.

BBC News

Let’s kill GDP, inflation will fall

......There has been much talk by the experts that India was behind the curve in tightening. By behind the curve is meant that RBI was too slow in raising rates. But the curve is not a one-way street. You can be (and RBI is) behind the curve by raising rates too much.............

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Consolidation likely ahead of Diwali

The stock market is likely to remain firm ahead of Diwali, as the financial performance of Indian Inc has so far not disappointed street expectations. However, the Reserve Bank of India's policy move could spoil the party at Dalal Street. With headline inflation showing no signs of any correction, market participants expect another rate hike of 25 basis points. The RBI is meeting on October 25 to decide on key interest rates.  Corporates are mounting pressure on central bank to pause on current rate tightening, as they are already struggling to raise funds to meet capital expenditure. However, the RBI Governor, Dr D. Subbarao, has reemphasised that inflation must ease before the central bank can reduce interest rates, signalling a tight monetary stance for now. Sustained buying by foreign institutional investors helped Indian markets recover sharply last week. Markets even ignored the weak industrial growth for August on hopes that the global atmosphere would continue to be conducive, as Euro-zone is indicating some actions will be taken to contain the region's economic woes.  The slowdown in industrial production is not an India phenomenon alone. The HSBC Emerging Markets Index declined to 51.9 in the third quarter of 2011 which, according to it, ‘is the slowest in nine quarters.' Of the big-four emerging markets, Brazil and India recorded the fastest rates of decline in new export orders. “Consequently, employment growth as measured across manufacturing and services eased to the slowest for nine quarters, reflecting a weaker rate of job creation in services and a stagnation of manufacturing employment. India recorded a decrease in headcounts for the first time since Q1 2009,” said HSBC report.

HBL

Financial markets that are efficiently regulated

The Reserve Bank of India (RBI), until the constitution of sector regulators like Sebi, Irda, etc, undertook the responsibility of developing various segments of the financial market. Setting up of institutions like the Industrial Development Bank of India,  Unit Trust of India (UTI), National Housing Bank (NHB) and National Bank for Agriculture and Rural Development  and so on, establishes historical track of the role played by the RBI in the development of the financial markets......

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Negotiating the next curve

If the RBI persists with rate hikes despite the onset of slowdown — just as it did not raise interest rates earlier when required — it may miss the bus yet again.

Monetary policy is all about getting the timing right. In 2008, when the wholesale inflation rate suddenly jumped from 4.5 per cent in January to cross double-digits in June, the Reserve Bank of India (RBI) was quick to respond. By August, the central bank had raised its repo rate as well as the cash reserve ratio (CRR) of banks to nine per cent. It wasted little time either when inflation took a plunge from December, following the global economic crisis, to hit negative territory in June 2009. Well before that, the repo rate was brought down to 4.75 per cent and the CRR to five per cent. But subsequently, even as industrial growth recovered towards the year-end alongside unleashing of inflationary pressures, the RBI was slow to react. By the time it did — from around March 2010 – inflationary expectations had already built up. The very fact that 200 out of the 350 basis points increase in the repo rate since then has come after January this year shows how ‘behind the curve' the RBI — and those in the Government prompting it from behind the scenes – have been. The hope that inflation would somehow wither away was simply misplaced. The danger today is of a different hope — of growth still being sustained at an accepted level even as the belated monetary policy actions are beginning to dent it. On October 25, RBI will hold its next policy review. With the annual wholesale inflation rate at 9.72 per cent for September — the 10th successive month it has been over nine per cent and the 21st at eight per cent-plus — it could consider yet another 25 basis point rate hike. But doing so would be counter-productive. The current inflation has been largely food and fuel driven with spill-over effects on wages — against which monetary tightening has proved ineffective, especially post-NREGA. While investment has slowed down, it has, however, more to do with general policy paralysis and waning business confidence than interest rates. High interest rates has mainly impacted the real estate and auto sectors; even that is probably now starting to harm steel or cement consumption more than reining in overall inflation. Demand compression, to fight an inflation fundamentally rooted in supply-side bottlenecks, may only exacerbate a slowdown that is already visible to many.  Against this background — more so, with July and August posting dismal industrial growth and September excise collections falling year-on-year for the first time in 17 months — the RBI would be best advised to press the pause button on further rate increases. Having not raised interest rates when it was required and now insisting on no stoppage until inflation falls to six per cent — the so-called ‘threshold' beyond which growth apparently gets hurt — would only be an invitation to recession. Hopefully, RBI will not miss the miss the bus again.

HBL

Economic policy: Shooting in the dark

... As the central bank wrestles with the dilemma of whether to continue, pause or stop in its tracks, it needs to know, and with far more certainty than at present, how far its policies have slowed down the level of economic activity, how far they have impacted inflation and so on. In short, it must be able to get its finger on the pulse of the economy and also ameasure of the pulse rate.....

Read....... 

Revive economy

As commented in your editorial “Restoring confidence” (Business Line, October 14), the growth rate is disappointing. It is high time the government concentrated its energies on early resolution of the Telangana issue, which is causing untold misery to the people of all regions in AP.  Also, the Congress should expedite early passing of the Lokpal Bill in Parliament — not for the purpose of pleasing Anna Hazare and his team — in the interests of all stakeholders of the country. Both the Government at the Centre and States, at the political level, and the RBI from the monetary viewpoint, should strive hard to put the economy on an even keel to arrest further decline in growth rates of the economy.

K. N. V. S. Subrahmanyam (HBL)

Coordinated measures needed to control price rise

....While the RBI is planning to announce its second-half monetary views and measures on October 25, it would be interesting to know that fiscal measures still continue to influence the monetary policy of the central bank and only a coordinated approach by the government and the RBI could bring down inflation.....

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Financial inclusion bogged by too much concern with regulatory prudence, rather than bold experimentation: FICCI report

....Banks have been advised by the RBI to submit their financial inclusion plans for reaching 72,825 financially excluded villages by 2012 and to integrate these with their normal business plans. While much has been achieved, as is the norm in any regulatory regime, what has been done by the banks has been the minimum necessary to gain approval (or at any rate regulatory forbearance). Thus significant areas of the rural hinterland of the major states are now reasonably served with banking services. ........

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Finance Ministry for white-level ATMs to boost banking access in country

NEW DELHI: In a bid to increase the penetration of banking services, the Finance Ministry has favoured setting up of white-level ATMs in the country. White-level ATMs are not owned by banks but by private ATM service providers. Customers from any bank can deposit or withdraw money from such ATMs. "Such ATMs will help take banking services to remote places," official sources said. Besides, it will help sponsored banks to set-up ATMs without incurring capital expenses for owning money dispensing machine, sources said. The Finance Ministry has given its view to the Reserve Bank in this regard, sources said, adding that the lead bank or sponsored bank of a district would be given the responsibility of filling cash and meeting other operational requirement. Thus, the bank will be saved from making investment for setting up ATMs, and even other expenses like technical infrastructure and security would be borne by non-bank entities. Currently, white label ATMs are not permitted by the RBI. State-owned IDBI Bank is considering to create a separate venture with private ATM service providers for running white-label ATMs, so called because they are not owned by any bank. At present, brown label ATMs are allowed in the country. In such cases, the hardware as well as lease is under the ownership of the service provider, while connectivity and cash handling and management is the responsibility of the sponsor bank. The ATM is named under the brand of the sponsor bank but the ATM machine is not owned by the bank. At present, banks allow customers of other banks five free-of-charge cash withdrawals at their ATMs every month but end up paying around Rs 3,000 crore a year to settle inter-bank transaction costs. At present, the installed base of ATMs is India is 75,000 as of June 2011. 

ET

ATMs spew fakes, banks deny bail

What will you do when you get a fake note from an ATM?

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Banking Reforms: Foreign v/ s Desi Consultants - DR. N. A. MUJUMDAR

The recent directive by the Finance Ministry to public sector banks ( PSBS) to implement the Report prepared by the Boston Consulting Group ( BCG) on improving banking operations has raised the basic question of who should be preferred: foreign or desi experts? The Report exhorts banks " to strive for excellence on five dimensions" branch sales and service, new channels, lean operations, organisation design and bad debt management". The Report also calls for a need to change the compensation structure

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Banks offer freebies to lure credit card customers

....According to a data released by the Reserve Bank of India (RBI), transactions using credit card during the April-August period of this financial year stood at Rs 37,678.25 crore against Rs 29,024.75 crore in the same period of 2010-11.....

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Rosaiah hails KVB's efforts in taking banking services to the masses

....The capital adequacy ratio stood at 14.83 per cent, well above the Reserve Bank of India's stipulated ratio of 9 per cent and the net non-performing assets at 0.21 per cent was one of the lowest in the country, he said. The bank has been earning profits since inception and declared dividend uninterruptedly, declaring even 120 per cent in the last three years. The bank has earned laurels from many quarters and is recognised as the best old private sector bank.....

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High food price, a crisis on our plate

...The high food prices are the result of structural factors with shortages getting aggravated as demand continues to outstrip supply. So, even as the RBI continues to focus on demand management, what will ultimately help control inflation is sustained increase in agricultural supplies. ........

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Greece's fiscal mess, all thanks to Goldman Sachs: YV Reddy

Nobel laureate Joseph Stiglitz once said that if America had a central banker like YV Reddy it wouldn’t have been in such a mess. High praise has been showered on this former RBI Governor for the manner in which he regulated banks, raised rates and reserve requirements, imposed provisions and risk weights to shield the economy and the banking system from over heated asset markets. The tough task was to do it against wide spread opposition…….

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Bank asked to pay compensation for bond lost in transit

CHENNAI: For Dr Felix Ryan and his wife Jaya, pledging their RBI bond for a bank loan turned out to be more trouble than they expected. Even after repaying the loan amount with interest, the couple have not got the bond back from the bank. Concluding that this amounted to deficiency in service, the State Consumer Disputes Redressal Commission (SCDRC) has ordered that they be given compensation of Rs 35,000 and the bond document be returned to them. A bench of Justice M Thanikachalam, president, SCDRC, judicial member J Jayaram and member Vasugi Ramanan passed orders in the matter. According to his complaint, Dr Felix Ryan had pledged an RBI tax-free relief bond for Rs 1 lakh with HBL Global Private Limited, the marketing division of HDFC Bank Limited, and obtained a loan of Rs 80,000. Though he repaid the entire loan amount with interest on June 4, 2005 and requested the bank authorities to return the bond which was pledged, there was no response from them. Since he had repaid the loan, the bank had no right to hold back the pledged bond, he said. After a legal notice to the bank failed to yield results, the couple filed a complaint before the district consumer forum. In March, 2009, the forum ordered the bank to return the bond along with interest in addition to a compensation of Rs 30,000 and a penalty of Rs 5,000. The bank approached the state forum in an appeal against this order. For their part, representatives of the bank said they had returned the bond through a private courier service on December 23, 2005. They resisted the case saying the complaint was not maintainable as the courier service was not made a party in the case.

However, the bench observed that it was not the responsibility of the complainants to implead the courier service. Since it was the contention of the bank that they had sent the documents through the service, it was for them to proceed against the company, which they failed to do. Except for a number mentioned in the written version, no documents were filed to indicate that Ryan had received the delivery.

TOI

Former Economic Adviser passed away............

Dr.D.K.Bhatia, who retired as Adviser passed away on October 13, 2011.  He was 77.  On his last day he had gone to B K C in connection with a journal he was editing and sustained a massive heart attack. He is survived by his wife and three children. He had a wide circle of friends both in and outside RBI. Shockingly enough for me, Bhatia rang me up on 12th and we had decided to meet on Monday, the 17^th..................

May his soul rest in peace.

As reported by P.P.Ramachandran (via e-mail)

                                               

adds:-   

A PhD in Economics from the Pennsylvania State University (USA) Dr. D.K. Bhatia had worked in various academic/teaching capacities in the US before returning to India. In India he served in various senior positions in the Reserve Bank of India (RBI) from which institution he retired as Economic Adviser. He also served as International Monetary Fund’s Advisor to Bank Indonesia (Central Bank), Jakarta during 1981-83. In his long career span he has supervised and handled several projects and surveys related to the Rural-Economic Issues in India. He had been a supervising member of the Annual Follow-up Rural Credit Surveys and All-India Rural Credit Survey, 1961-62 conducted by RBI during the years from (1958 to 1965) designed to understand and investigate the dynamics of rural credit flow in general, and especially in the regions of Gujarat (Bharuch, 1958), Kanpur (1959), Bihar Munger (1960), Western Uttar Pradesh (1961-1963). Dr. Bhatia was also involved in the conduct of an Irrigation System Study in the wake of then pressing food grains crisis; this survey focused on tube well irrigation in Deoria (UP) in 1959-60. Dr. Bhatia had a range of training experiences. He was deputed as a Member of Directing staff at XVI SEANZA (South East Asia, New Zealand and Australia) Central Banking course held in Dhaka (Bangladesh) from October-December, 1986. He served as a Group Leader in International Banking Summer School in September 1989 organised jointly by International Banking Council, and Indian Institute of Bankers. He served as a Convenor for the Sub-Group on Private Sector (Household) Saving for the 8th Five Year Plan, under the Chairmanship of Dr. C. Rangarajan who was then the Deputy Governor and later became Governor, Reserve Bank of India. In this experience in the Capital Market he served as RBI nominee on the Governing Board of the Bombay Stock Exchange (1989-1994). 

 

Border vigil intensified for fake bank notes

Jaipur: The Border Security Force has beefed up security along the international border in Rajasthan after receiving reports from intelligence agencies that there were likely to be large-scale attempts to smuggle counterfeit currency into the country through Rajasthan, Punjab and Jammu and Kashmir. The governor of the Reserve Bank of India (RBI), D. Subbarao, chairing a meeting of the bank's deputy governors and newly constituted board, noted that the problem of counterfeit currency had shown a marked increase. The central bank, the Finance Ministry and the Home Ministry were in the process of drawing up a comprehensive plan to stop the racket, he said. "The Indian laws will have to be amended to punish such persons who are involved in circulating counterfeit currency. The present law has many loopholes and it is difficult to prove that a person was involved in circulating counterfeit currency. The role of police and the law will have to be redefined to curb the circulation of the counterfeit notes." The RBI became vigilant after the National Investigation Agency alerted that fake currency notes were being printed at a government-owned printing press across the border.

http://gulfnews.com/news/world/india/border-vigil-intensified-for-fake-bank-notes-1.891876

PM meets top advisors to discuss current economic situation

Amid concerns over high inflation and dipping growth, Prime Minister Manmohan Singh today held informal confabulations with top economic advisors and officials to discuss the present economic situation. The meeting was attended by Reserve Bank Governor D Subbarao, Planning Commission Deputy Chairman Montek Singh Ahluwalia and PMEAC Chairman C Rangarajan, besides some senior officials. While there was no official word on what transpired at the meeting, sources said they informally deliberated on the current Indian and global economic scenarios. The informal meeting comes days ahead of the second quarter monetary policy review of the Reserve Bank of India (RBI) on October 25. The central bank has already raised interest rates 12 times in the last 18 months to tame rising prices. There are indications that RBI may continue with its current hard monetary stance in view of both headline and food inflation remaining close to the double-digit mark, much above the comfort level for the central bank.  "The meeting (with PM) is on the current economic situation. We will have a discussion on growth and inflation, and consider the policy options in this regard," Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan had said yesterday. Headline inflation stood at at 9.72% in September as food products, fuel and manufactured goods grew costlier, a development that is likely to prompt RBI to continue with its policy of monetary tightening.  Indian economy grew by 7.7% in the first quarter, the slowest growth in 18 months, against 8.8% in the same period of the previous fiscal. Industrial output also remained subdued for the second consecutive month in August, registering a growth of just 4.1%.

Moneycontrol

G20 Meeting

Financial Inclusion and Banks – Issues and Perspectives

Address by Dr. K.C. Chakrabarty, Deputy Governor, Reserve Bank of India at the FICCI – UNDP Seminar on “Financial Inclusion: Partnership between Banks, MFIs and Communities” at New Delhi on October 14 2011

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Inflation at 9.72%; rate hike on cards

With headline inflation perilously close to double digits, few expect the RBI to take a pause from its tightening cycle on October 25......

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Inflation expectations and RBI’s response

The central bank would have to signal that it is dedicated to a low and stable inflation environment in the economy. That would imply surprising the market with higher than expected rate hikes and build its credibility as an inflation hawk. RBI should follow through on its action, even if the economy faces short-term pain and slowdown on account of rising unemployment or falling output

Read more................. 

FIIs have not been running for the exit

...foreign institutional investors have not pulled out big money from the Indian market in this period is also corroborated by another set of data on international investments put out by the RBI....

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BofA Merill Lynch says RBI likely to halt rate hike - Business Today

..."There is growing consensus that sluggishness will persist longer than expected earlier. Concerns over the sovereign debt problem in the Euro area have added further uncertainty to the prospects of recovery," the RBI said in a statement.....

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Interest rates must be in line with inflation: Chakrabarty

New Delhi : Declining to be drawn into the issue of another interest rate hike, the RBI Deputy Governor, Dr K.C. Chakrabarty, said that rates have to be in line with inflation. “The exact inflation figure does not matter; what is important is that inflation is still high. Given this situation, the RBI has no other instrument to rein it in other than rate hikes,” he said speaking on the sidelines of a seminar organised by FICCI on Friday. Advocating a possible solution to the high inflation situation, Dr Chakrabarty said: “If inflation goes up, interest rates also go up everywhere in the world. If we want inflation to go down, we have to use technology to bring down the cost of products and services. It has happened in the case of mobile delivery charges where costs have not gone up over so many years.” “The supply side issue has to be addressed to produce more with lower cost and that would bring down the production costs and hence inflation,” he added. RBI's next monetary policy review is expected on October 25. A recent data released showed headline inflation remained close to double digits at 9.72 per cent in September.

HBL

‘Supervision of MFIs cannot be outsourced'

New Delhi : The Reserve Bank of India has no plans to outsource its existing regulatory and supervisory framework for microfinance institutions (MFIs). This was stated by the RBI Deputy Governor, Dr K.C. Chakrabarty, at a FICCI seminar on “Financial Inclusion: Partnership between Banks, MFIs and Communities” held on Friday. “We cannot outsource the supervision for effective monitoring of MFIs in India as we want to keep that area under the RBI's jurisdiction. However, we are not opposed to decentralising their monitoring but it has to be done through opening of RBI's own branches in remote locations where MFIs are operating,” he added. The proposed MFI Bill envisages a greater role for RBI in regulating the MFI sector. It is meant to enable the orderly growth of microfinance institutions, provide universal access to such finance by the poor and disadvantaged classes, and regulate the sector.

HBL

Canara Bank - Change in Directorate

Canara Bank has informed BSE that in exercise of the powers conferred by of Clause (c) of sub-section 3 of section 9 of the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970/1980 read with sub-clause (1) of clause 3 of The Nationalised Banks (Management & Miscellaneous Provisions) Scheme, 1970/1980, the Central Government, hereby nominated Smt. Meena Hemachandra, CGM-in-charge, Reserve Bank of India, Foreign Exchange Department, Central Office, Mumbai as Director under RBI Nominee Category, on the Board of Directors of Canara Bank in place of Shri G. Padmanabhan with immediate effect and until further orders, vide Notification dated October 13, 2011 of Department of Financial Services, Ministry of Finance, Government of India.

Moneycontrol

RBI conducts TAFCUB meeting

Jammu, Oct 13: The 7th meeting of the State Level Task Force on Urban Cooperative Banks (TAFCUB) was held at RBI Srinagar under the Chairmanship of K K Saraf, Regional Director for J&K. The meeting was attended by Co-Chairman M Abbas, IAS, Registrar, Co-operative Societies, J&K, Subhash Gupta, Chief Executive, National Federation of Co-operative Urban Banks, New Delhi and CEOs of Urban Co-operative Banks also attended the meeting. The meeting reviewed the performance of the Urban Co-operative Banks in the Urban Beanking Sector in the State of Jammu and Kashmir along with latest policy developments were the major issues discussed in the meeting. Recommendations of Y H Malegam Expert Committee on licensing of new Urban Cooperative Banks were also discussed.

Greater Kashmir

RBI unveils rating symbols

The Reserve Bank has announced uniform and standard rating symbols to be used for indicating financial health of a bank.  The change in rating symbols and definitions, however, does not effect, in any manner, the rating methodology followed by the credit rating agencies (CRAs) for rating such instruments and will have no bearing on the existing ratings assigned by the CRAs under the Basel-II framework, the Reserve Bank of India said. Under the revised standardised system, there is no change in the long term rating symbols except that they will henceforth display the rating agency’s name as a prefix, it said. “In case of short term ratings, a rating scale denoted by ‘A’ on a scale of ‘1’ to ‘4’ (i.e. A1, A2, A3 and A4) and ‘D’ has been prescribed,” it said. Four domestic CRAs namely CARE, CRISIL, FITCH India and ICRA have been accredited for the purpose of risk weighting the banks’ claims for capital adequacy purposes.

DH

RBI's tight monetary policy to continue: Dy Guv

A day after RBI Governor D Subbarao dashed hopes of a pause on hiking rates, his deputy K C Chakrabarty hinted at continuation of the tight monetary policy, despite the country showing a decline in economic growth parameters.All the same, Chakrabarty said monetary policy had its own limitations when it came to arresting high inflation in the long run, saying price pressures could only be brought down by addressing supply-side issues and reducing manufacturing cost. “If inflation remains high, interest rates will also be high,” he told reporters on Friday on the sidelines of a seminar organised by the Federation of Indian Chambers of Commerce and Industry in association with United Nations Development Programme, India.When asked if the Reserve Bank would further hike the policy rates, he said that the deputy governor said he could not answer the question based on just one figure (monthly inflation for September). The decisions in the policy review are taken after due research and analysis of many factors, he added. “There is something called minimum medicine that needs to be given,” he said when questioned on the series of policy rate hikes. Yesterday, the RBI governor had indicated that it might not soon give up on its tight monetary stance. “Had we not raised the rates, how much would have been the inflation,” asked Subbarao. “Despite so much tightening, inflation runs as high as 9.8 per cent as of August,” he said in Jaipur. RBI has raised policy rates 12 times since March last year, but inflation still remains over 9 per cent for months. The bank is now slated to come out with its monetary review on October 25. Chakrabarty, earlier addressing the participants from the banking sector and micro finance institutions, asserted that RBI has removed all the roadblocks in effectively carrying out financial inclusion. “The poor are more bankable than the rich. The only expectation that I have from you people is that I do not exploit the poor people,” he added. Chakrabarty also criticised banks and the MFIs for “poor financial inclusion”. MFIs are “themselves responsible” for their current state. “You cannot claim that you are doing financial inclusion by charging 80 per cent interest rates,” he said. Responding to a query on proof of address having become a hurdle for the poor to open a bank account, he said just a simple self-declaration was sufficient for the poor to open a basic account.

BS

Mumbai on alert

Mumbai: Mumbai has been put on alert after a huge cache of explosives was recovered from Ambala Railway Station yesterday. Other parts of Maharashtra including Pune, Nashik, and Nagpur are also on high alert. Security has been beefed up outside vital installations and sensitive points including the Chhatrapati Shivaji International Airport, BARC, Mantralaya and an RBI building.  The Mumbai police have also been asked to carry out surprise checks at hotels, motels and the lodges in the city. An alert has been sounded in the neighbouring state of Goa. On Wednesday, a large quantity of RDX was recovered from a car parked outside the Ambala railway station. According to reports 5 kg of RDX, 3 timers and 5 detonators were retrieved in the search operations.

Daily Bhaskar

What’s the rate beyond which inflation hurts growth?

RBI Working Papers:

Why Persistent High Inflation Impedes Growth? An Empirical Assessment of Threshold Level of Inflation for India by Sitikanta Pattanaik and G.V. Nadhanael. Inflation Threshold in India: An Empirical Investigation by Deepak Mohanty, A.B. Chakraborty, Abhiman Das and Joice John

The chief domestic concern for the economy is currently the high level of interest rates and inflation. Elevated interest rates have slowed down the economy and are impeding investment. Will the Reserve Bank of India (RBI) continue to raise its policy rates? How much growth is it willing to sacrifice to tame inflation? These questions are considered in two recent working papers from the RBI. Both these papers show that, above a certain level, inflation starts to hurt growth and there’s no trade-off between inflation and growth—the only objective, at these high levels, would then be to reduce inflation, without bothering about growth. That’s exactly what the RBI has done. The paper by Sitikantha Pattanaik and G.V. Nadhanael of the Department of Economic and Policy Research at the RBI gives a number of reasons why high inflation hurts growth. The authors say that inflation has an adverse impact on private investment, because price signals become distorted, leading to misallocation of resources. Higher inflation could make domestic firms less competitive relative to imports and could hurt exports. Input costs, including wages could go up and would hurt profits, thus restraining entrepreneurs from investing. Inflation could lead to lower demand, affecting growth. The researchers explain that the Philips curve, which shows the relationship between the inflation and unemployment rates, will start to bend backwards above a certain point, which means that higher inflation would lead to more unemployment. The authors quote deputy governor Subir Gokarn, “Below the threshold, workers and producers do not raise their wage and price demands very often because the impact of inflation is not too visible. By contrast, they respond very quickly above the threshold because they are worried that high inflation will rapidly erode their living standards or profitability. In short, when inflation is high, the behaviour of workers and producers increases the likelihood that it will increase further.” The authors cite three trends in India that show inflation is well above the threshold: first, inflationary expectations, seen from RBI surveys, are above the headline inflation rates; second, the pace of increase in wages has also been much more than inflation and third, corporate finance data suggest that growth in staff costs in recent quarters have been higher than the rate of growth in earnings. So what is the threshold level of inflation in India? The researchers use three methods to arrive at this cut-off point, which they put at a wholesale price inflation rate of 6%. A rate of WPI (Wholesale Price Index) inflation above 6%, therefore, hurts growth in India. The second paper also empirically estimates the threshold level of inflation for India. Its conclusion: “For WPI-inflation up to 5.5%, there is positive impact on growth, which is statistically significant. The relationship reverses when WPI-inflation is beyond 5.5% and inflation effect on growth turns negative.” The Reserve Bank has indicated that it expects the WPI inflation rate to be 7% by the end of March 2012. But that is much higher than the threshold rates worked out by both these papers. Does it mean then, contrary to market expectations, the central bank will continue to have a tight monetary policy beyond March 2012?

Mint

Informal meet on inflation today

As inflation has remained above nine per cent throughout this calendar year till September, Prime Minister Manmohan Singh has called an informal meeting tomorrow to take stock of the situation. An official termed the meeting as informal, in-house consultations. The meeting will be attended by Planning Commission deputy chairman Montek Singh Ahluwalia, Prime Minister’s Economic Advisory Council (PMEAC) chairman C Rangarajan and chief economic advisor Kaushik Basu. Wholesale price index (WPI)-based inflation stood at 9.72 per cent in September, even though it came down slightly from 9.78 per cent in the previous month. “The latest WPI inflation figure is not encouraging. The decline is very low... It (inflation) is still very high. The only encouraging point is it has not moved up,” finance minister Pranab Mukherjee said in Paris, the venue of the G20 finance ministers’ and central bankers’ meeting. Twelve rates hike by the Reserve Bank since March 2010 could not bring inflation down much. Many experts believe the RBI might not pause its tight monetary stance.

BS

No moderation in inflation for RBI to change policy : Rangarajan

NEW DELHI: Citing the near double-digit inflation, the Prime Minister's Economic Advisory Council (PMEAC) today said there is no sign of moderation in the rate of price rise to prompt the Reserve Bank to change its policy of monetary tightening. "It is not a very comfortable situation. For the monetary policy stance to change, inflation has to come down and show signs of definite decline. But that kind of an indication has not come...," PMEAC Chairman C Rangarajan told a private news channel. His comments followed the release of data which showed that the overall inflation remained close to the double-digit mark, at 9.72 per cent, in September on account of costlier food products, fuel and manufactured goods. Inflation, as measured by the Wholesale Price Index (WPI), stood at 9.78 per cent in August. For 10 months in a row, inflation has remained above the 9 per cent mark. According to experts, the elevated inflation level is likely to put pressure on RBI to continue with its policy of monetary tightening. The apex bank has hiked key policy rates 12 times since March 2010 to tame inflation. The bank's next monetary policy review is scheduled for October 25. During the central bank's meeting at Jaipur this week, RBI Governor D Subbarao said the rate hikes have affected industrial activities, but asserted that inflation continues to remain above the comfort level of around 5 per cent.  He also said that interest rates would come down only if inflation eased. Meanwhile, in its Economic Outlook for 2011-12, the PMEAC had said that inflation is likely to remain elevated till the third quarter of the fiscal because of high prices globally.

TOI

RBI hikes Paypal payments ceiling to USD 3,000 per transaction

New Delhi : Users of online payments gateway PayPal in the country can now receive up to USD 3,000 per export-related transaction in their accounts, with the RBI raising this limit from USD 500 per transaction earlier. The increase in the limit is with immediate effect, but merchants using Paypal accounts to receive funds would need to add their PAN (Permanent Account Number) and bank account details to comply with the RBI guidelines, PayPal said today. The step will help the Indian SMEs and consumers who use Paypal to receive their payments. In addition, the move will support PayPal and the budding India business of its parent company eBay, an online marketplace. "This is a huge step forward for PayPal and for Indian SMEs, who can grow their export business through e-commerce by tapping our 100 million active users in 190 markets across the globe, right from the US to the UK to Australia," PayPal India Country Manager Mayur Patel said in a statement. "We are thrilled about the increase in transaction limit and would like to thank the RBI for understanding and being supportive of the needs of SMEs who wish to expand their business through cross-border trade," Patel added. eBay, which claims to have an online community of 2.5 million in India, has about 12,800 registered merchants in the country, who consider selling through eBay either their primary or secondary source of income.

MSN News

India Inc chooses CPs over banks for short-term funds

A series of rate hikes by the Reserve Bank of India over the last 18 months has forced India Inc to rely more on commercial papers (CP) than banks for short term funds. In the first five months of 2011-12 (April to August), the volume of CP issuances has risen 83 per cent over that in the same period last year. CPs are unsecured debt instruments issued by companies to meet their short term fund requirement. Their maturity period is less than a year. According to the data sourced from credit rating agency CRISIL, CP issuances between April and August 2011 stood at Rs 2.31 lakh crore compared with Rs 1.26 lakh crore during the first five months of the previous year. The outstanding CP amount stood at Rs 1.49 lakh crore at the end of August 2011. Bankers said most large corporates were not approaching them for their short-term funding needs. “Almost all big corporates are raising funds through CPs since we can't lend them below the base rate,” said a senior banker with the State Bank of India, the country's largest bank.

IE

Stagflation ahead?

Not unexpectedly, WPI inflation at 9.72% was not much below August’s 9.78%. So, going by the statements by various RBI officials, we may see yet another rate hike by RBI later this month. Although RBI is of the view that the demand situation doesn’t show a suitable contraction, most indicators—whether the services or the manufacturing PMI and investment numbers—are screaming red. In which case, this is one of the most important decisions for the central bank—getting a rate hike decision right at this juncture will probably mean the difference between sustainable growth and stagflation. Much of the demand RBI is seeing at the moment is part of legacy momentum—like inflation—and will start slowing further as prospects of jobs keep declining. Not surprisingly, the Prime Minister has called for a meeting of his crack team of economists—C Rangarajan, Montek Singh Ahluwalia and Kaushik Basu—later today. A few points need reiteration, even if it is for the nth time. One, if food inflation is driven by sharp hikes in procurement prices, there is little monetary policy can do to control this—perhaps a large import plan should have been put in place months ago. Two, with the global crisis getting worse, it doesn’t seem likely that commodity prices will recover—so, despite the depreciation of the rupee, this will start impacting Indian inflation. Three, as many point out, not just our columnist Surjit Bhalla today, inflation has been falling for several months on a seasonally adjusted basis (see Goldman Sachs’ post-WPI data flash)—on a quarter-on-quarter basis, Sachs’ (saar) headline inflation has fallen from 11.3% in April to 6.4% in September, and non-food inflation from 11.3% to 4.8%. It is true that seasonally adjusted data differs from one analyst to another, depending on assumptions made, but the trend looks by and large the same—perhaps it would be a good idea if RBI started putting out its seasonally adjusted numbers since it does do this exercise on a regular basis. The other question RBI needs to ponder over is whether a wage-price spiral (based on its understanding that inflation’s back is not broken) is a more potent threat at this juncture or whether a slowdown-induced fiscal slippage-foreign-liquidity one is more of a danger. Right now, the latter seems more critical.

FE

Stubborn inflation: Here's why economists are getting edgy

September inflation came in at an ugly 9.7%. The only relief was that the number was not uglier than expected. Economists note that the prices of non-food manufactured products have risen more modestly that they did in previous months. Nevertheless a rate hike in the next RBI policy meeting on October 25 seems imminent. CNBC-TV18's Latha Venkatesh and Gopika Gopakumar report. The big push comes from food prices, which rose by 1.4% over their August levels; primary articles which rose by 1.3% month-on-month and fuel prices which rose by 0.84%. The positive was that manufactured products rose by only 0.2% over August, and excluding food products, the manufacturing index was up only 0.1%. Yet policy makers worry that the trajectory is still a rising one and the headline inflation is too high for too long. C Rangarajan, Chairman, PMEAC said, "The number is not very encouraging. The inflation rate more or less remains at the same level as the previous month and therefore, it is not a very comfortable situation. It's not an easy decision to make because there are no definite signs of decline from the inflation picture. So long as the headline inflation remains so high, well above 9%, I would think monetary policy has still a role to play in containing demand pressures." Economists also worry that given the rise in rail freights and electricity tariffs the inflation levels in October and November may also remain well above 9%. Gaurav Kapur Senior Economist, RBS said, “We are expecting headline inflation to hover over 9% for the next couple of months at least. In October-November, you would most likely see numbers hovering above 9%. December onwards, when the base effect comes into play and comes into play very significantly, you will see numbers coming off.”  There is a hope that with the harvest coming into the market in October, global commodity prices falling and Indian growth faltering we may see a fall in the momentum of inflation. But not every one is sure. Post October 25, the RBI may continued to be faced with the cruel dilemma of falling growth and high inflation.

Moneycontrol

Another Rate Hike?

The RBI, which will meet on Oct 25 to review policy, has raised interest rates a dozen times since mid-March 2010 to combat stubbornly high inflation and is expected to tighten them further one last time this year before a pause...............

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Inflation above comfort level industrial production concern too: RBI

“We have to weigh growth, inflation and factors affecting the economy of our country,” 

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Newsibition at Jaipur



Reserve Bank of India (RBI) Governor Dr D Subbarao inaugurates 'Newsibition' (news-cum-exhibition) at the Jawahar Kala Kendra, Jaipur on October 12, 2011

India Post's ATM plans hit RBI hurdle

India Post's plan to set up automated teller machines (ATMs) in its post offices may fail to impress the banking regulator. India Post is in talks with the Reserve Bank of India (RBI) to set up ATMs. However, since according to norms, only banks are allowed to set up ATMs, the central bank is not in favour of allowing India Post to set up ATMs. According to sources in the banking industry, if India Post set up ATMs, they should fall under the RBI's purview for regulation purposes. India Post has proposed to set up a subsidiary, Post Bank of India, for providing banking facilities. It has also identified nearly 1,000 post offices, out of its 1.5 lakh post offices, where the ATMs would be initially set up. The sources said though RBI is uncomfortable with the idea of India Post setting up ATMs, it is yet to formally communicate its apprehensions to the department of post. To increase efficiency and profitability, the department of post had planned to introduce banking solutions and set up ATMs and debit cards for its customers. It also plans to introduce core banking solution by 2012, and has initiated the process of modernising information technology (IT) during the current financial year. The cost of the IT modernisation project is estimated at around Rs 2,000 crore, which includes an integrated, modular software solution, covering postal operations, banking and insurance services. The department of post also has plans to tie up with banks to help its customers use their India Post debit cards at ATM machines. It has also submitted a plan to the finance ministry for approval. The department aims to offer banking services through India Post in unbanked rural areas that lack formal financing facilities. India Post already offers financial services, including post office savings schemes, postal life insurance, pension payments and money transfer services.

BS

Bill to help banks recover dues to be introduced in winter session

NEW DELHI: The government Thursday approved the introduction of a bill in the winter session of parliament, which will help banks improve their debt recovery process and enhance credit to both corporate and retail customers. The enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill 2011, will also reduce the cost of funds for banks and their customers and reduce the level of non-performing assets, said an official note. "The proposed amendments would enable banks to improve their operational efficiency, deploy more funds for credit disbursement to retail investors, home loan borrowers, etc. without fearing for recovery, thus bringing about equity," said the note. "Further, mandatory registration of subsisting security interest (equitable mortgages) would promote innovation in credit information," it added. According to the Indian arm of global ratings major Standard and Poor's, Crisil, slowing economic growth and increases in equated monthly installments because of subsequent rate hikes by the Reserve Bank of India (RBI) would increase banks' non- performing assets (NPAs). The RBI has asked banks to focus on recovery and follow a stringent credit appraisal procedure. Although laws exist to help banks recover dues from defaulters, banks and financial institutions have been facing numerous problems in recovery of loans because of delays in disposal of recovery proceedings. India had enforced a Banks and Financial Institutions act in 1993 and followed it up with the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest act in 2002 to help banks reduce NPAs.

ET

"New Rs 2, Rs 5 coins out to confuse you" (13/10/2011) - Eyeview

The metal content and design/s of coins rests entirely with the GOI. The RBI as a distribution agent for coins, however, stands exposed to public criticism for none of its fault.

Kishore Savkur, Ex-CGM, DCM / Ex-Managing Director BRBNMPL (via e-mail)

RBI taking steps to check counterfeit currency notes in Rajasthan

Jaipur: Chances of getting a counterfeit currency note while withdrawing money from ATM will get reduced soon. The Reserve Bank of India has been taking special steps to check the counterfeit notes being deposited in automatic teller machines (ATM) of Rajasthan. RBI governor D Subbarao has informed that the banks where more than Rs 50 lakh are being deposited on a daily basis will soon have the note sorting machine that will identify the fake notes and keep a check on it. There have been many cases in the state about customers getting fake currency notes while withdrawing cash from ATMs, the RBI Governor said. "Rajasthan, being a border state of the country, is very important that attention is paid on checking fake currency," and informed that thorough checking procedures are being implemented in the state to verify the currency note before they are being deposited into the ATMs by the banks. "We are taking special care for the upcoming festivals and every note that is being deposited by the bank into ATM has to pass the test of verification before it is deposited; we are sure by such measures we will be able to minimise the chances of fake currency in the state," said Subbarao. He informed that every citizen must intimate the bank if they, by any chance, get fake currency notes and said that banks are under obligation to inform the police about this. However many times due to work pressure, police are not able to take action on such cases. But now for working on such cases, special arrangements are being made, he added. "We have discussed the matter with the Union home minister about the need for nodal police stations that will work to put a check on fake currency in the state," said Subbarao, while giving details about the steps taken to check the menace of fake currency notes in Rajasthan. 

Daily Bhaskar

When currency note ceases to be legal tender, no money is refunded against it

Keep in mind that you do not have a right to recover the value of any note which is lost, stolen or mutilated.....

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RBIspeak

Apropos Rajeev Malik’s article “Sudoku for RBI” (October 11), I do not agree with the author when he says “…when it comes to central banks, effective but less frequent communication is always better than more frequent but less effective communication.” The frequency and the text of policy approaches and interpretations of the central bank depend on the frequency of happenings in the economy and the audience addressed, respectively. Thus, in the context of the European crisis, we read almost every day the announcements of several central bank authorities in the euro area on the latest turn of events.

RBI’s communication policy has improved a lot over the years, avoiding jargon as far as possible. Only a small proportion of its statements in the form of press releases, the speeches of the executives and so on are of interest to the aam admi. He is concerned about inflation and the action taken by RBI to control it as also the credit policy. The rest of the material is technical and meant for experts, market men, bankers, government officials, et al. So far, I have seen in the editorials of the financial press only appreciation of the clarity in RBI statements. This is in contrast to Greenspanspeak that was noted for “constructive ambiguity”. Once Greenspan, the then chairman of the US Fed, told a Congressional Committee meeting: “I guess I should warn you, if I turn out to be particularly clear, you’ve probably misunderstood what I’ve said.”

A Seshan, Mumbai (BS)

IIFCL becomes non-banking finance firm

New Delhi  : The Reserve Bank of India (RBI) will now regulate India Infrastructure Finance Company Ltd (IIFCL). The Union Cabinet on Thursday approved a proposal in this regard. Announcing the decision, the Information and Broadcasting Minister, Ms Ambika Soni, said, “IIFCL will be brought under the regulatory oversight of RBI by registering it as an non-banking finance company — Infrastructure Finance Company ( NBFC-IFC).”  The decision will increase the authorised capital of IIFCL to Rs 5,000 crore from Rs 2,000 crore, with a proviso that it may be further increased to Rs 8,000 crore with the approval of the Finance Minister, she added. IIFCL, which started operating from April 2006, provides long-term debt for infrastructure projects. After reviewing its performance, the Economic Advisory Council to the Prime Minister had advised that it should be placed under the regulatory oversight of the RBI as a financial institution, such as Nabard, SIDBI, Exim Bank or National Housing Bank. According to a Government statement, bringing IIFCL under the regulatory oversight of RBI with clearly defined prudential norms would be financially prudent and would safeguard the long-term sustainability of the institution. The increase in authorised capital would enable IIFCL to expand its financial assistance to the infrastructure sector and meet the needs of increased capital adequacy ratio, it added.

HBL

RBI, JK Bank organise banking awareness programme

Srinagar, Oct 13: To make the students and teachers aware about banking, the Reserve Bank of India in collaboration with J&K Bank and Lead Bank Office Budgam organized an awareness programme at Sheikh-ul-Alam Hall Budgam today. Chief Education Officer Budgam Abdul Rashid Mir was the Chief Guest on the occasion. The programme was also attended by R.K. Meena, Assistant General Manager RBI, Viqar Nazki, District Manager J&K Bank Budgam, Muhammad Yaqoob, District Manager Lead Bank office Budgam along with other representatives of some banks and financial institutions. The programme saw presence of teachers and students of Commerce and Management streams from various institutions besides cluster heads of District Budgam. Meena dwelt at length on banking, fake note currency identification, ATM Operations, financial inclusion, fake lotteries, impact of recession, deficit finance, monetary and fiscal policies, role and functions of non Banking Finance companies (NBFC), Bank’s ombudsman etc. A quiz was also held and various participating students were given out gifts by RBI officials. Cluster head/ District manager J&K Bank Budgam on the occasion said that J&K Bank is committed to serve the society as it has done in the past.

Greater Kashmir

JK Bank, RBI conduct financial literacy programme

The Jammu and Kashmir Bank in association with the Reserve Bank of India (RBI) organized a Financial Literacy cum Awareness Programme for personnel of 79 BN of Central Reserve Police Force stationed at Doordarshan Kendra, Srinagar. The participants were informed about the role and responsibilities of RBI and its significance to the common citizen of the country. On the completion of the 75 years of RBI last year, it was decided to reach out to people in every nook and corner of the country to create awareness and literacy about banking system, roles and responsibilities of the banks, importance of the system and how it touches the lives of the common people. On the occasion, information about banking system, banking products, roles and responsibilities of banks, customer grievance redressal mechanism in the banks, technology based banking services and the government schemes implemented through banks was disseminated. The participants were also cautioned about the operations of some fly-by-night operators, cheap fund transfer schemes, fake lottery offers and unscrupulous elements who lure the people and dupe them of their hard earned money. Salient features of the genuine Currency Notes were also discussed on the occasion. On this occasion, a note exchange counter in collaboration with J&K Bank Nallamar B/U was arranged for the benefit of the participants. The programme was followed by an interactive session wherein the doubts raised by the personnel on various aspects of the banking activities were clarified by the officers from RBI.

http://www.kashmirdispatch.com/more-news/13106386-jk-bank-rbi-conduct-financial-literacy-programme.htm

RBI Central Board reviews economic scenario

Ahead of the monetary policy review later this month, the Central Board of Reserve Bank on Thursday met in Jaipur to discuss the key economic and financial developments. The meeting was chaired by RBI Governor D. Subbarao. The Central Board of Directors meets at least once every quarter. “The meeting reviewed key economic, monetary and financial developments,” RBI said in a statement. The governor and deputy governors also briefed the new Board members on the objective and functions of the various departments of the apex bank. Newly nominated Directors to the Board Y.H. Malegam, Anil Kakodkar, Kiran Karnik, Dipankar Gupta, G.M. Rao, Ela Bhatt and Indira Rajaraman were also present at the meeting. Against the backdrop of high inflation and sluggish industrial growth, the monetary policy review is keenly awaited. The Central Bank has been continuously hiking interest rates since March 2010 to tame high inflation. The quarterly review of the credit policy is due on October 25. On Wednesday, the RBI had indicated that it may not lower the key interest rates as inflation was still high. “...We need to bring inflation down in order to bring interest rates down,” Mr. Subbarao had said. The overall inflation was at a 13-month high of 9.8 per cent in August.

HBL