... According to RBI Governor D Subbarao, lower production of pulses and inadequate supply of protein-based food may put further pressure on food prices in the near term.....
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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.
Sunday, October 30, 2011
Battling inflation while pursuing growth
.... We know that the fruits of GDP growth are not equally distributed among the people of the country especially to the poor. But the effect of inflation is badly experienced by all especially the poor. Therefore it is preferable that control of inflation should get priority over growth. Keeping the inflation well within control, whatever the growth the country achieves, should be good for all the people of the country……
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RBI panel may propose reserve, provisioning rules for non-banking finance cos
MUMBAI: A panel constituted by the Reserve Bank of India may suggest provisioning and reserve requirement rules for non-banking finance companies that will narrow the gap between these lenders and banks, two people familiar with the thinking of the committee said. "In terms of risk management, there will be movement closer to that of banks," said a person familiar with the group's deliberations. "The room available for regulatory arbitrage should no longer be there with some reserve requirements," he added. For the first time in more than a decade, the central bank in May formed a committee under former Deputy Governor Usha Thorat to address issues relating to non-banking finance companies (NBFCs). The group was asked to focus on the definition and classification of finance companies and may make its suggestions public as early as this week. Finance companies that have few restrictions on sectoral lending, group-wise exposure, lending against shares and real estate loans are seen as creating risk to the system since they borrow from banks. Any seize-up in lending due to a crisis similar to the 2008 meltdown may put even the banks at risk, the person added. The recommendations will address these issues. Some of the proposals could crimp the profitability of finance companies. Bank loans to NBFCs have risen 55% in fiscal 2011, prompting the RBI to call it 'lazy banking'. Gold loans such as the ones offered by Muthoot Finance and Mannapuram Finance are growing at 50% annually. Securitisation of loans and assignment transactions have raised red flags. The committee included, among others, Sanjay Labroo, director, central board of RBI and Rajiv Lall, MD and CEO of IDFC. But there were no representatives from deposittaking finance companies, leading to fears that their interests may not be protected.
ET
Competition to intensify onsavings bank deregulation
...Banks in India held 26 per cent of their total deposits in the form of savings bank deposits as of June 2011. Assuming the savings bank deposit rates of these banks rise by 1 percentage point, profits before provisions and taxes will be lower by 9.3 per cent (based on FY-11 profits) if they do not pass on the deposit rate hikes to borrowers...
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What to make of free bank deposit rates
............The rates will now closely reflect the policy rates. This means like any other deposit rate, savings rate will also fluctuate and a bank offering a higher rate today may not be the one always offering the best rate............
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Thumbs up for RBI decision
The deregulation of interest rates by Reserve Bank of India (RBI) augurs well for those city residents who have been saving money in their banks, instead of investing it in other avenues like the share market....
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Deregulation of savings bank deposit interest rates likely to push loan rates up
.......The deregulation of savings bank deposit interest rates is expected to put additional cost pressures on banks and thereby impact their profitability. Analysts believe banks are likely to offset the impact of this increase in interest costs partially by levying transaction and service charges on bank accounts.....
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Deregulation of savings bank interest rates: RBI’s move not practical in the present scenario
....The RBI has only created discrimination between the lower middle class and the upper middle class by allowing the banks to quote differential rates for balances below and above Rs1 lakh. .......
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SBI may raise saving deposit rate by up to 125 basis points
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Saturday, October 29, 2011
Soiled currency exchange mela held
Tuticorin : A mela was organised by Industrial Credit Investment Corporation of India Bank, Tuticorin Branch, on Friday to exchange soiled and mutilated currency notes. Besides, coin mela was organised at the venue in the public interest. Collector Ashish Kumar inaugurated the programme in the presence of S. Ilango, Assistant General Manager, Reserve Bank of India. The programme was scheduled under the guidelines of RBI, Chennai. Nearly 400 customers benefitted from this programme after exchanging the soiled and mutilated notes valued at Rs.4,00,000 and coins to the tune of Rs.3,00,000. Besides, fresh currency to the tune of Rs.35, 00,000 was distributed to people. A fake note identification awareness was created by the RBI officials. “Traders and people hesitate to accept dirty and torn currencies though there is a guarantee clause from the Reserve Bank Governor. Banks need to replace the soiled notes and half or full torn notes with fresh ones when people demand. Such services could be rendered under the guidelines of the RBI refund rule 2009,” Krishnamurthy, Special Assistant, RBI, said. The ICICI Bank has been carrying out this exercise at regular intervals through Currency Chest called Integrated Currency Management Centre.
HBL
Issue chip-based cards, banks told
The Chennai Police has urged all banks to consider issuing chip-based credit and debit cards to avoid duplication. This comes in the wake of a rise in complaints of bank card frauds, including card cloning and data theft from ATMs. Commissioner of Police J. K. Tripathy, who convened a meeting with representatives of various banks here on Tuesday, advised them to be more sensitive towards issues concerning transaction security. He urged for some changes in the present system for bank cards, including the introduction of biometric identification system, cards with chips, and dynamic PIN system for ATM users. Mr. Tripathy also asked bankers to provide online and mobile banking facility only after providing adequate advice to customers on the safe usage of the service. He also requested users of ATM machines to be more cautious and inform authorities in case they find any mysterious objects in the card slot. The meeting was attended by representatives of more than 30 banks, officials from Central Crime Branch and RBI.
HBL
Phase out cheques and go electronic, RBI tells NBFCs
As part of its green initiative, the Reserve Bank of India has asked all non-banking financial companies (NBFCs) to gradually phase out use of cheques and shift to electronic payment system.The government, in its green initiative efforts, has suggested several steps for entities in financial sector, including NBFCs, for better utilisation of resources and delivery of services. “NBFCs are therefore, requested to take proactive steps in this regard by increasing the use of electronic payment systems, elimination of post-dated cheques and gradual phase-out of cheques in their day to day business transactions,” RBI said. These will result in more cost-effective transactions and faster and accurate settlements. The Centre has developed an e-payment system for disbursal of subsidies to consumers of fertilisers, LPG and kerosene.
DH
Central Banking Wisdom
Y.V. Reddy, the author of this book (India and the Global Financial Crisis), was governor of the Reserve Bank of India from September 2003 till September 2008 (Lehman Brothers collapsed on September 15 that year). No less a publication than The New York Times credits him with being one of the architects of the policies that cushioned the Indian economy from being hit hard by the global financial crisis. In this book, a compilation of Reddy’s essays on a range of banking-related subjects, the chapter on the global financial crisis offers insights into how Western central banks — chiefly the US Fed (though Reddy abstains from naming it) — failed to discharge their regulatory duties properly. Reddy’s points about the Indian central bank’s policies that enabled the country to emerge relatively unscathed should be read closely by all who want to gain an insight into the arcane world of central bank policy-making.
Proud boast
In the early years of the first decade of this century, it was the proud boast of the US Treasury and central bank that they had learnt to tame the boom-and-bust cyclicality of the economy. In reality, what the Fed was doing was that to keep the economic expansion going it kept interest rates at very low levels for a prolonged period. Sceptics like Raghuram Rajan who warned that such policies would create asset bubbles, whose bursting would cause grievous damage to the economy, were scoffed at. Retribution finally arrived in 2008. The Fed’s accommodative policy had created a surfeit of liquidity which, in the pursuit of high returns, was invested in high-risk instruments, including mortgage-backed securities. During the years leading to the crisis, between the market and the government, the balance of power had clearly shifted in favour of the former. The prevailing wisdom then was that the markets knew best. And even if they were sometimes prone to excesses, they had the capacity for self-correction. Regulators allowed themselves to be persuaded (by vested interests within the financial sector) that they had no business intervening in the markets.
Played the fiddle
Prices in asset markets soared, like Nero the US central bank played the fiddle while the economy burnt. For its inaction it offered the excuse that spotting a bubble in advance was difficult, and in any case, spotting bubbles was not part of its mandate. So it did not tighten regulation when the economy displayed excessive exuberance. It allowed itself to be lulled into complacency by a viewpoint widely prevalent then that even if there was excessive risk in the system, new derivative instruments and new entities like hedge funds would help disperse it widely. Reddy asserts that the central bank’s failure lay in the fact that it did not take the countercyclical measures so necessary for moderating boom-and-bust cycles. Instead its policies first fuelled the boom, and in the later stages, it stood by and watched the bubble grow. He further adds that many central banks in the developed world focused only on containing inflation. Since their mandate did not explicitly say so, they were not vigilant about maintaining the stability of the financial system. Reddy criticises Western central banks’ practice of providing forward guidance about monetary policy to the markets. Assured that rates would not be raised anytime soon, speculators speculated freely with borrowed money. It is understandable why such a practice is anathema to an ex-RBI governor like Reddy. In India the central bank tries to achieve its policy goals more through shock measures and by doing the very thing that the market doesn’t expect.
Regulatory capture
Regulatory capture in the US also contributed to the crisis, says Reddy. The fast-growing financial sector had come to wield inordinate influence over the political economy, and by extension, over the regulators. Former Goldman Sachs employees holding heavyweight positions within the government is a case in point. With such people in charge, a laissez faire policy vis-Ã -vis the markets was the natural outcome.
Crystal gazing
Reddy’s foresight is apparent from his comment that the steps taken by the US to revive its economy would have consequences for developing economies. This has indeed come about. The quantitative easing programmes led to escalation in commodity prices and import-dependent nations like India paid the price in the form of high inflation. Reddy’s prescient warning that the fiscal stimulus measures undertaken by developed countries would increase their debt levels, and that these nations should constantly assess the fiscal sustainability of their actions, has also turned out right. Three years after the crisis, high sovereign debt in much of the developed world has taken away governments’ ability to take counter-measures as growth stalls and the danger of a double-dip recession looms large.
India: relatively unscathed
To readers one of the key points of interest in this book would be the policies that helped the Indian economy escape the crisis with only a marginal slowdown in its growth rate. Reddy explains that in India monetary policy always tended to be countercyclical: in other words, policymaking here did not encourage the build-up of asset bubbles. Moreover, the RBI conscientiously discharged its duty of maintaining financial stability. And it did not encourage speculation by providing forward guidance on policy. Also, during the boom years India and many other Asian nations wisely built up their forex reserves. This served as a kind of insurance in case there was a sudden outflow of portfolio flows (which dominated the strong foreign capital inflows of the boom years). During the East Asian crisis of the late nineties, such outflows had wreaked havoc on the currencies and economies of many East Asian nations, and they were keen to avoid a repeat.
Lessons learnt
Has the world drawn any lessons from the economic havoc — massive destruction of wealth, years of slow growth, and unemployment of millions — that the crisis has wrought? Yes, to some extent. In the developed world, it is now recognised that the deregulation of the financial sector needs to be reviewed and redesigned. Policymakers there now admit that the financial sector, though critical, is only a means to an end, and that while it may enable growth, it does not create or sustain it. Its unbridled growth may not be permitted in future.On financial innovation, it is recognised that all innovation may not be good for the system: a balance has to be struck between efficiency and the larger social good. The crisis has also had the salutary impact of restoring the balance of power in favour of the government. It is no longer presumed that the markets are always right and that they do not need the government’s regulatory hand to guide them. In future, says Reddy, central banks of advanced nations will also have to focus more on financial stability, besides discharging their basic duty of inflation targeting. In fact, central banks of the advanced world would do well to take a leaf from the Indian central bank’s manual of policymaking (to which the author has contributed richly). After all, it is among the few central banks that have emerged from the crisis with their reputation enhanced.
http://www.valueresearchonline.com/story/h2_storyView.asp?str=18321
Monetary Policy Review: Cat on the wall? – S.Balakrishnan
‘I am marrying today but I am likely to divorce after two months'.
This about sums up in layman's language the essence of the second quarter Review of Monetary Policy Statement for 2011-12 released on October 25.
In a policy sense, we have to look far beyond quarterly Monetary Reviews and examine how we can minimise conventional energy and commodity intensity of the economy without sacrificing growth. For, why the ‘prediction' that ‘the likelihood of a rate action in the December Mid-quarter Review is relatively low' when ‘both inflation and inflation expectations remain high' (begging the question of what are ‘inflation expectations': the first is a fact and the second is conjecture). And: ‘We expect these levels to persist for two more months'. The precision is staggering; it's as if the RBI knows the exact date from which inflation will start falling. Do we have an astrological central bank? Of course not, for it goes on to say, ‘there are potential risks of expectations becoming unhinged'. Will all of us go mad? At the end of a series of about a dozen rate increases (and almost abject apology about the latest) the RBI takes comfort in decimal point downgrades to inflation and growth. There is a bold projection (with several qualifications as has become customary) that inflation will drop to 7 per cent by March 2012 and further in 2012-13. Does it mean the RBI is content if inflation isn't above the high single digits? It's difficult to have the best of all possible worlds, that is, low (2-3 per cent) inflation and high (10 per cent — give or take a little) growth, now that the rest of the world has caught on to the phenomenon and implications of rapid growth in China and India.
Most important are commodity prices. Global energy and metal prices swing wildly from day to day, depending on economic news from, and perceptions of, these two countries. Therefore, in a manner of speaking, the worse the US, Europe and Japan do, the better for China and India, as there is then less pressure on commodities. But do we want the former risking our flourishing IT sector? In a policy sense, we have to look far beyond quarterly Monetary Reviews (important as they are for the short-term) and examine how we can minimise conventional energy and commodity intensity of the economy without sacrificing growth. In other words, more GDP with less of non-renewable resources. The need is for infrastructure of the right quality and type — example, mass transportation, fuel efficient small cars, offsite work using computers and networks, and so on. Should we be so obsessed with repo rates to the exclusion of all other issues of the real economy? The least important are, in fact, the Ministry of Finance, the RBI and the parasitical financial sector. As far as quarterly Reviews are concerned, the best thing for our monetary architects would be a non-cataclysmic global or domestic event forcing rate cuts next time. After all, that is what even they seem to want.
The author is a Chennai-based financial consultant. (HBL)
RBI warns against fraudulent offers
Kohima, October 27 (DIPR): With a number of fictitious offers of cheap funds in recent times, often in the form of lottery prize money, through letters, e-mails, SMS, etc being offered by fraudsters, the Reserve Bank of India (RBI) has advised customers to be aware and follow proper guidelines laid down by the RBI. The RBI has said that fraudulent communications are being sent on fake letterheads of the RBI or other reputed organizations, purportedly signed by their top executives/senior officials. It has been reported that many persons have fallen victims to such teasing and tempting offers and in the process, have lost huge sums of money. The fraudsters seek money from people, under different heads, such as, processing fees/transaction fees/ tax clearance charges/ conversion charges, clearing fees, etc. The fraudsters open multiple accounts in banks in the name of individuals or proprietary concerns in different bank branches for receiving such payments and the amount so remitted is withdrawn immediately, leaving the victims in the lurch. Evidently, the fraudsters’ strategy is to play upon the credulity / naiveté / gullibility / ignorance / greed of unsuspecting victims, the RBI said. In the light of such undesirable developments, the RBI has advised to follow and take care that customers “do not remit or deposit any amount in response to such fictitious offers of easy money through lottery, prizes etc, received mainly through letters, email or SMS.” Further, RBI said it “does not maintain any account in the names of individuals/companies/trusts etc. to hold funds for disbursal.” Reserve Bank of India would never ask people to deposit money in any account. Also note that “making any type of remittance towards participation in schemes of lotteries/ offers from unknown entities abroad or their agents in India is illegal.” Customers may refer to the cautionary advices available in the matter at the RBI website (www.rbi.org.in). The RBI has further advised on registering such cases with the local police or the cyber crime wing at the State police headquarters, in case customers receive any such offer and invariably do so, if you have already parted with any amount at the behest of the fraudsters.
http://www.morungexpress.com/frontpage/72424.html
Guidance for pause not irrevocable commitment: D Subbarao
….“India is a huge market, a growing market, with growing incomes. So I would believe that if we do the right things and implement the right policies, we can still achieve high growth,”…..
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Finance ministry pushes for increase in PPF, post office rates
If Mukherjee approves an increase in interest rates on small savings, your PPF will fetch you at least 8.2%, instead of 8% now, while senior citizens can hope to earn around 9%. In addition, individuals will be permitted to park Rs 1 lakh in PPF accounts instead of Rs 70,000 at present......
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Saving grace
The Reserve Bank of India's (RBI) decision to deregulate savings bank (SB) deposit rates removes one of the last vestiges of the regime of administered interest rates. Although contemplated for some time, the timing — announced in the October 25 monetary policy review — may have surprised the market. As a preparatory step, the central bank had, six months back, hiked the SB interest rate by 50 basis points to 4 per cent. But now, with the floodgates totally open, it remains to be seen what the floor and ceiling rates will be. From the RBI's standpoint, SB accounts, by virtue of constituting almost a quarter of banks' aggregate deposits, exert considerable influence on their cost of funds. Therefore, as long as the rates on these deposits remain unaltered, it impedes the process of transmission of its policy rate changes. This has been seen in recent times, where RBI's signals — explicit and subtle — have often not registered with banks. One got a glimpse of that behaviour even after the previous 25 basis point repo rate hike in mid-September: Most banks did not respond, while some went ahead and gave discounts to customers. The RBI's helplessness in enforcing its monetary tightening measures is compounded by the Centre's loose fiscal policy. Deregulation of SB deposit rates, in such a context, would help enhance the efficiency of monetary transmission. It may also put pressure on public sector banks' operations. A regulated interest rate regime on SB balances provided them a cushion against higher costs faced elsewhere. That will now go. With a record of operations of over a decade and a half even in the face of enhanced competition from private sector banks, there can no longer be a case for continued regulatory support of this kind. For consumers, there may be immediate benefits from deregulation, as they could get more than 4 per cent on their SB accounts. But remember that these accounts are, in practice, transaction accounts; there are better avenues for productively parking savings than an SB account. Where it might still make a difference, though, is with regard to SB accounts of high net worth individuals (HNI). One can expect banks — especially the more aggressive private sector ones — to vie with one another to attract these depositors. For many banks, it may be cheaper to pay 250 basis points more on SB deposits than borrow in the call money market, now at 7-9 per cent. That could, in turn, unsettle the established banks used to taking their SB deposit holders for granted, while the latter (more so, the HNIs) may start looking at these accounts beyond their transactional use value.
HBL
Banks to decide on loan, savings rates next week
... Analysts also doubt whether banks will enter into a rate war as customer acquisition in savings accounts will not help banks much unless they are able to cross-sell other products. Analysts see state-run banks acting in concert while retail-focused private banks fight for customers.....
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Sensible action
This is with reference to the editorial “One-trick pony” (Business Line, October 26). It is aptly said that sometimes non-action is a sensible action. But a moot point is if non-action by the RBI at this juncture would be beneficial to the economy. Certainly, the present hike in interest rates will have its impact on economic growth. But RBI has no choice, but to resort to this unpleasant action, keeping in view the present stubborn high inflation rate. Of course, increase in the MSP rate is unwarranted, and will fuel further food inflation.
K. N. V. S. Subrahmanyam (HBL)
The resilience likely to continue
...However, policymakers are continuing to grapple with exceptionally high inflation rates, which have once again resulted in the central bank revising the repo rate to 8.50 per cent and the reverse repo rate to 7.5 per cent, with the CRR remaining at six per cent in an attempt to provide an anchor to inflation expectations. ...
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Maditssia condemns RBI's rate hike
Madurai : The Madurai District Tiny and Small Scale Industries Association (Maditssia) has condemned the recent hike in repo rate by 0. 25 points, announced by Reserve Bank of India (RBI). Mr V.S. Manimaran, President of the association, has said that the increase announced with the aim to contain the inflationary trend in the economy, would severely affect the small and tiny industries. In a statement here, he said that the rate hiked for 13 th time in a short span, has resulted in an increase of five percent in the rate of interest. While the Government is keen to ensure that the rate of interest for agriculture lending is not affected, it has ignored the small scale sector which offers 40 per cent to gross domestic product growth and employment to people. Already the sector is reeling under power cut, shortage of raw materials and increase in input costs and the present hike by RBI would drive to unemployment and loss of livelihood to lakhs of people.
HBL
RBI needs another toolkit
....Obviously, the RBI is wading through the difficult territory of growth-inflation dynamics and persistent global uncertainty. While there are no easy solutions here, it may definitely pay to wear an unconventional cap or two while formulating policy. Will the latest minutes of the Technical Advisory Committee (the constitution of which was an invaluable contribution of Dr Y. V. Reddy to the monetary policy debate) throw light on if these are options the RBI may have considered and discarded? ......
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Oliver Twist retol
... The fact is that the RBI can do little to contain food inflation simply because the causes are largely not within its domain. It is for the Government to act without dragging its feet any longer.....
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Cabinet to take up AI expansion plan after RBI report: Vayalar Ravi
NEW DELHI: Air India's acquisition plan for 27 Boeing 787 Dreamliner planes and for additional equity infusion of Rs 6,600 crore would be deliberated by the Union Cabinet after the RBI gives its views on debt restructuring plan for the ailing national carrier. "A report on (Air India's) debt restructuring prepared by the Committee of Officers will be reviewed by the RBI within a week. Only after that will any decision be taken," Civil Aviation Minister Vayalar Ravi told reporters after a meeting of a Group of Ministers (GoM) here today.
ET
Need for right kind of energy mix
...Stating that a huge amount of money and funding was required from banks and financial institutions to achieve the right kind of energy mix to meet the ever growing energy needs of the country, Tata-BP Solar CEO K. Subramanya said the Reserve Bank of India (RBI) should create a “separate window to finance” solar and other renewable energy projects in view of the limitations of banks to go beyond the sectoral spending limit.....
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RBI penalises two cooperative sector banks
The Reserve Bank has imposed a penalty of Rs 5 lakh each on two cooperative sector lenders – the Pravara Sahakari Bank and the Baroda Traders Co-operative Bank -- for violation of various norms. "RBI has imposed a monetary penalty of Rs 5 lakh on Pravara Sahakari Bank Ltd, Ahmednagar, Maharashtra... for violation of directives/guidelines of the RBI on maximum limit on advances as modified from time to time, by sanctioning loans to trusts managing different colleges in excess of the single borrower norm," the apex bank said in a statement. The Baroda Traders Co-operative Bank has been penalised for non-adherence to Know Your Customers (KYC)norms, it said in another statement. RBI had issued separate show cause notices to these banks in response to which they had submitted written replies. The central bank, after studying their replies, came to the conclusion that the violations were substantiated and warranted imposition of the penalty, the statements said.
FE
E-payment gateway to settle retired govt employees' benefits from Apr 1
NEW DELHI: Come April 1, retired government employees don't need to run from pillar to post to claim their post-retirement benefits anymore. Once an employee retires, all benefits like gratuity and provident funds are likely to be credited to the account the next day, and the pension will be deposited from the next month.....
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Friday, October 28, 2011
RBI's interface with banks on speeding up clearing operations
State Bank of India, Tiruchi, in coordination with its MICR Centre and Centralised Clearing Processing Centre, Tiruchi, arranged an interface between Reserve Bank of India and member banks of the Tiruchi Clearing House here recently. P.Vijaykumar, General Manager (DPSS & NCC), RBI, Chennai, spoke in detail about the functioning of clearing operations and the payment systems such as RTGS / NEFT and Speed Clearing. He explained the advantages of truncation of clearing instruments to be introduced soon wherein the clearing process would be undertaken based on the images of instruments. This initiative by the RBI would further speed up the processing of clearing, he added. Various queries raised by member banks during the interactive session were clarified by Mr.Vijaykumar and C.Saravanan, Assistant General Manager, RBI, Chennai. Officials from State Bank of India and around 40 member banks of Tiruchi Clearing House participated, a press release from the SBI here said.
HBL
RBI to tell banks to follow cops' advice
CHENNAI: Growing concern over the increase in number of complaints from ATM users on credit card fraud will now see the Reserve Bank of India issuing a strict directive to private and nationalised banks, asking them to adhere to police instructions on security guidelines. In the backdrop of about 60 complaints received from bank customers by the Central Crime Branch (CCB) over the last one and half months, Commissioner of Police J K Tripathy, ADGP (Crime) Abhay Kumar Singh and CCB officials - DCP A Radhika, ADC Dr M Sudhakar and ACP John Rose, held a meeting with the RBI Regional Director N S Viswanathan and 22 representatives of commercial banks on Tuesday to chalk out a strategy to tackle the menace of credit card fraud. On the sudden spurt in the number of cases, a senior CCB official told Express that a five-member gang, including three Sri Lankans, was arrested in the first week of October on charges of printing fake credit cards. The gang had stolen the data of several customers and was probably operating from behind bars in a bid to show that they were not involved in the racket. The kingpin of the gang, Manoj Kumar, a native of Pattukottai, was also still at large, he said. The CCB official said the meeting discussed ways by which banks could tighten both system and infrastructure security. The arrest of another gang on Sunday showed that courier companies, which dispatched the credit cards to bank customers, were turning out to be a weak link in the ATM system. “Since the credit card data had been stolen by employees of a courier firm and used even before it reached the customer, we suggested that the card remain ‘dummy’ till it reaches the hands of the customer,” he said. “After ascertaining his/her identity through a set of questions over the phone, it could be activated.” The top police brass also insisted on frequent inspection of the ATM centres by bank officials to see if any skimmers had been inserted in the machines by fraudsters. “At present, the banks do not conduct any inspection,” the CCB officer said. “It was suggested that they maintain a roster for each ATM centre.” Another suggestion was that banks educate their customers to change their PIN number frequently. Besides, they could implement the ‘One-Time Password’ (OTP) method. “Inserting the card activates a call and the customer receives a new password over the cellphone from the bank for that transaction,” the official said. The police also took exception to the banks directing their customers straight away to them in the event of any fraud detection. Banks must accept the complaints, analyse the loopholes that led to the fraud and submit a progressive report to the police, which would help them in the investigation, they told the bankers. Since chip-based credit cards offered better security than those with magnetic stripes, they must also think in terms of switching over to them. The police suggested a ‘Know your customer’ plan under which credit and debit cards will carry photographs of customers. ADGP Abhay Kumar Singh suggested that all banks have a main account of the customer and an add-on-account, which will have a minimum balance, and the loss in the event of a fraud would not be much. The RBI chief said that a circular would be issued to all private and nationalised banks in the city, stipulating that the guidelines set by the police were mandatory.
Expressbuzz
Find a fake note? Fear not to report it
If you come into possession of a fake currency note inadvertently, don't be afraid to report it. No more will you face the threat of a police case or be treated with suspicion, thanks to new norms of the Reserve Bank of India. As per the existing norms, banks are required to file a first information report (FIR) immediately upon detection of a fake note. However, hesitation among customers as well as bank officials in taking the matter to police has led to under-reporting of the detection of fake notes. To address this, the apex bank now has instructed banks that there is no need to register a case with police unless five or more pieces of fake notes are detected in a single transaction. In all other cases where one or up to four fake notes are detected, a consolidated report can be sent to the police at the end of every month, the RBI said. This decision was taken on the recommendations of the High Level Group on Systems and Procedures for Currency Distribution Chaired by Usha Thorat, former Deputy Governor, RBI. From the police perspective, there are still some more gaps to address. Amit Garg, Additional Commissioner of Police (Crimes), Hyderabad, said a compliant should be scientific. ``I have recently suggested to some banks that they should segregate huge amounts deposited by different customers with some kind of identification. This helps proper mapping of source and region while we investigate,'' he said. There is a greater need for banks and people to come forward with complaints if fake notes are detected, he added. The RBI Governor, D.Subbarao, while addressing the press during the policy review, agreed that there was under-reporting of the matter. Pointing out that detecting counterfeit notes was the responsibility of both the central bank as well as commercial banks, he said: “The reporting was skewed because we found that only one or two banks were reporting counterfeit notes. The others were probably not paying enough attention.” He said that the RBI was in discussion with banks on the subject. As a first step, at least 20 per cent of frontline staff – both officers and clerks – would be trained in the detection and reporting of fake notes during 2012. According to the RBI, 45,235 pieces of counterfeit notes were detected by it, while 3,90,372 pieces were detected by various commercial banks in 2010-11.
HBL
RBI becoming too predictable - K. KANAGASABAPATHY
Unlike earlier, RBI's statements now provide a forward guidance to policy stance. As a result, almost every change was anticipated and discounted by markets even before the announcements
The Reserve Bank of India's monetary policy statements ever since the framework was changed from monetary targeting approach to multiple indicator approach since April 1998 contained three important elements. First, was an assessment of macroeconomic and monetary developments in India in the backdrop of global developments. The second is the stance of monetary policy which clearly presented whether the policy's thrust was biased towards the price stability or inflation control objective or more attuned towards supporting growth by stimulating investment and export demand; and third was policy action in terms of monetary measures using instruments such as cash reserve ratio, repo rate and reverse repo rate. The policy statements provided base line projections for growth and inflation, besides some monetary and banking indicators. Another important element of policy had been the strategy towards exchange rate and the closely related reserves management which practically did not undergo any change till late 2009. The exchange rate policy was guided by the broad principles of careful monitoring and management of exchange rates with flexibility, without a fixed target or a pre-announced target or a band, coupled with the ability to intervene, if and when necessary. The management of reserves took into account the changing composition of the balance of payments and endeavoured to reflect the ‘liquidity risks' associated with different types of flows and other requirements.T his strand of policy presentation and prescription by and large continued through the tenures of Dr. Bimal Jalan and Dr. Y.V. Reddy till about end of 2008 and extended through the tenure of present Governor Dr Duvvuri Subbarao till about the end of 2009.
Some Recent Departures
Three broad departures are evident since about late 2009. First, while the macro and monetary projections continue, the upside and downside risks are elaborated in the statement. Second, over a period, the policy statements now provide a forward guidance to policy stance. Earlier, there was no policy guidance for the immediate future except stating broadly that the RBI would act swiftly and decisively as and when evolving external and domestic conditions so warrant. Third, while the reserves management strategy did not seem to have undergone a change, the exchange rate management had become more and more fully market-oriented and the RBI has been following practically a hands-off policy. Two implications are evident because of the recent changes. First, the surprise element has been taken out of policy to a great extent. Apparently, almost every policy change was anticipated and discounted invariably by markets even before the announcements. One exception was a 50 bps hike in the repo rate last July when the anticipation was only for a hike of 25 bps. Second, the exchange rate movements are now in a wider range, particularly under global uncertainty. Third, in the absence of exchange market intervention, the extent of reserves accumulation has been limited.
Implications of guidance
In the mid-year review, the forward guidance of a pause by December seems to have virtually negated the policy action of raising the policy rate. The market seemed to have cheered the guidance. The stock prices moved up and the government securities yields have softened, soon after the policy announcement. In corporate bond market also, yields are reported to have fallen sharply as some buying emerged. Given the easy liquidity scenario, the transmission of the rate hike on base rate and effective bank lending rate is also likely to be muted. The second risk is about inflation. Even assuming oil prices rule stable, a currency depreciation has serious downside risk to inflation forecast. Added to this is the fiscal risk that may put added pressure. Late 2009, both government and the RBI anticipated the inflation rate to come down significantly by end of fiscal and this was belied later. If for some reason, the inflation rate does not subside by December, there would be a loss of credibility. Third, once the market knows about hands-off policy of RBI on exchange market intervention, any intervention when really warranted by RBI may not be taken seriously and may prove to be excessively costly even for moderating volatility in rupee exchange rate. Dr. Reddy, who was known to have taken the market often by surprise, mentioned in an important speech on communication in 2008 that surprise element in the decisions and timing of the communication were more effective, and particularly when the public policy preferences and the market preferences were in virtually opposite directions. He added that the emphasis of communication was on presenting information and analyses, while the RBI desisted from giving any explicit forward guidance. A transparent signal for stabilising expectations in tune with policy stance would enhance policy transmission. But, such signals are better given through actions from time to time, but not by declaring in so many words about the actions that would be taken or not taken in the future. As such, when policy action is hawkish, a dovish forward guidance on policy may negate the very objective of current policy action.
HBL
Multi-level parking cleared; hits code hurdle
CHANDIGARH: The Sector-17 multi-level parking project has finally got the green signal from the architect wing of Chandigarh administration, but it will take another six months before it can start. The likelihood of implementing the model code of conduct for municipal polls next week is the reason for further delay. The multi-level parking lot, which is coming up near RBI building in Sector 17, will be able to accommodate around 1,000 vehicles.
TOI
Rate hike playing havoc with SMEs: FISME
BANGALORE : An increase in 375 basis point in the repo rate by the Reserve Bank of India (RBI) over the last 20 months or so and the consequent sharp increase in the cost of credit is playing havoc with micro, small and medium enterprises, feels Federation of Indian Micro and Small & Medium Enterprises (FISME). This is the 13th such hike in the basic interest rate since early 2010 and since then the repo rate has gone up by a whopping 375 basis points. “The indecisiveness of the central government on supply side reforms coupled with its fiscal profligacy has rendered the RBI’s interest-rate hikes more or less ineffective in containing inflation,” said FISME President Shri V.K. Agarwal. “Under the circumstances,” he said, “we would like to bring to the RBI’s notice that out of the top 200 items produced by MSMEs, the demand for nearly 60 per cent of these items are critically dependent on the healthy growth of three sectors – buildings and construction, transportation, and the white goods sector.” He added that while the rate hikes have adversely impacted investment decisions in all three areas and thereby the top line growth of MSMEs producing items meant for final consumption in these sectors, the increased cost of credit has become quite unbearable for many MSMEs as this is also eroding their margins and rapidly pushing them towards insolvency. “In view of this situation, and the fact that interest rate hikes have adversely impacted investment in housing, automobiles and white goods due to a sharp weakening of demand as higher financing costs are forcing consumers to defer their purchase decisions, FISME would like the RBI to consider an interest subvention scheme for the MSME sector so that they can survive even as RBI continues to maintain its anti-inflationary stance.”
A Clarity of Vision - Concerted Efforts
The 25 bps repo rate hike announced by the RBI in its Second Quarter Review of Monetary Policy was along expected lines given the stubbornness of inflation. The RBI is well aware that the cumulative past policy actions are yet to play their full course. As such, the rate hike is to be seen more as an exercise in managing inflationary expectations than curbing demand. The more important takeaway is the guidance on the peaking of the interest rate cycle and the possibility of a muted response on the rate front from RBI going forward. By laying down clearly that the RBI looks forward to contain demand in the short run, which will lower inflation and inflationary expectations and thus aid in improving supply response in the medium term, Dr D. Subbarao has clearly brought out the policy imperatives. Deregulation of interest rates on savings bank deposits might have some implication for the cost of funds but the Indian banking system is mature enough to handle this transition. The relaxation in branch authoristaion policy in Tier-2 cities is a welcome move and will help in expanding the reach of banking.
Alok K.Misra, CMD, Bank of India. (HBL)
Equal focus on monetary, structural measures
India's war against inflation continues. With headline inflation at 9.7 per cent in September 2011 and food inflation at 10.6 per cent for the latest reported week, the RBI could not lower its guard against inflation in the current policy review despite rising growth concerns. A moderate hike of 25 bps each in the policy rates was an inevitable response to India's stubborn inflationary pressures. However, the policy review has also given a dose of comfort to investors by stating clearly that inflation would start moderating from December 2011 and the possibility of another rate action in December 2011 is relatively low. The deregulation of savings bank rate is a crucial policy decision as it would not just limit the depletion of real interest earnings of depositors but also improve the transmission of monetary policy impulses. The exact impact of this move on a specific bank's profitability would, however, depend upon several factors like low-cost deposit share, operating efficiency and liquidity management of that particular bank. The structural measures such as proposals to set up the groups to study non-discriminatory loan pricing and to review norms on loan restructuring and a warning to banks to manage carefully the foreign exchange risks from un-hedged exposures of companies would substantially improve the credit underwriting standards. On the whole, the policy has achieved an optimum balance between monetary and structural measures.
M.D.Mallya - Chairman, Indian Bankers' Association (HBL)
Inflation continues to be top policy challenge: RBI
New Delhi: Food inflation quickened in mid-October as prices of vegetables soared, sustaining the pressure on overall inflation and the Reserve Bank of India. The RBI has identified inflation as the top policy challenge. “Inflation continues to be a major macroeconomic concern. The headline WPI inflation has remained stubbornly high, averaging 9.6% during the financial year so far. Inflation has been broadbased, and driven by all the three major groups, primary articles, fuel and power and manufactured products,” RBI said in its monetary policy review. “As indicated in the first quarter review, both the level and persistence of inflation remain a cause for concern. Of larger concern is the fact that even with the visible moderation in growth, inflation has persisted,” the central bank said. The RBI has raised interest rates 13 times since March 2010 and has indicated that it may be over with its current tightening cycle if overall inflation eases to 7% by end-March. It has said further rate hikes “may not be warranted if the inflation trajectory conforms to projections”. But economists say inflation is unlikely to ease to 7% by March and could still hover around 8-9% putting pressure on RBI to maintain its tight policy stance.
TOI
Food inflation spurts to 11.43%
Having breached the psychological barrier, food inflation raced ahead to 11.43 per cent for the week ended October 15 from 10.60 per cent in the previous week owing to a relentless surge in prices of vegetables, fruits, milk and protein-rich items. The WPI (Wholesale Price Index) on food inflation released here on Thursday shows that while vegetables were 25 per cent dearer on a year-on-year basis, fruits turned more expensive by 11.96 per cent and milk by 10.85 per cent. Alongside, eggs, meat and fish were also costlier by 12.82 per cent. What is hurting the common man all the more is that this fresh bout of double-digit inflation is over and above the 14.20 per cent spurt witnessed during the same week in October, 2010. In effect, there is no statistical anomaly of base effect in play in the current surge in prices which is very close to the high of 11.53 per cent recorded for the week ended April 9 this year.
More disconcerting for the authorities is the fact that edibles such as pulses and cereals — prices of which had eased in recent months — have started to become more expensive and turned dearer by 9.06 per cent and 4.62 per cent, respectively, on a yearly basis. Items which tended to cost less on an annual basis, however, were onions with their prices declining by 18.93 per cent while wheat and potatoes also turned cheaper by 0.95 per cent and 0.45 per cent, respectively. In a way, the spurt in food inflation, which has a significant share in the overall price spiral, vindicates the rate hike and the policy stance taken by the Reserve Bank of India (RBI). In its annual review, the apex bank had estimated headline inflation to remain high till December this year before tapering down to about 7 per cent by the end of the fiscal year in March, 2012. Noting that real wage inflation has extended into the first quarter of the current fiscal, the RBI, in its second quarter review said: “Food inflation is likely to stay elevated due to demand-supply mismatches in non-cereals and large MSP [Minimum Support Price] revisions.” Significantly, headline inflation, which also accounts for the price surge in manufactured items, has hovered above 9 per cent since December, 2010 and stood pegged at 9.72 per cent in September this year.
HBL
Loose fiscal policy main culprit behind high inflationary pressures says study
The RBI has already hiked the repo rate by 375 basis points (bps) from the bottom, and it is loose fiscal policy that is the main culprit behind high inflationary pressures, says Macquarie.........
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Freeing up of branch licensing is welcome
The mid-year review has initiated a smooth transition in the monetary policy stance. The RBI has continued with monetary tightening to take the anti-inflationary measures to their logical conclusion. At the same time, it has signalled a transition in the stance by indicating that the likelihood of another rate hike is low given the likely moderation in inflation. The policy statement also outlines several other measures, most notably the deregulation of savings account interest rates. Banks will work out their product strategies to ensure stability of liability franchises and appropriate management of the overall cost of intermediating savings and providing banking services. The freeing up of branch licensing in Tier-II centres is also a welcome measure that will give greater flexibility to banks in expanding their networks across the country. Going forward, the moderation in inflation could provide room for monetary policy to address growth risks.
. Chanda Kochhar, Managing Director, and CEO, ICICI Bank (HBL)
Savings rate deregulation will soon result in competitive equilibrium
...Retail deposit customers do shop around; they do have more than one banking relationship. But to expect all of them to dance to interest rate movements is myopic. If at all, there would be a small section of customers who may have such behaviour. ....
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Banks fear high interest rates will dent profits
Even as Reserve Bank of India’s (RBI) deregulation of savings deposit interest rate will benefit depositors, the move will put pressure on banks due to higher cost of funds compounded by slowing growth in credit offtake.........
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Freeing SB rates
The Reserve Bank of India has deregulated savings bank interest with the caveat that banks must offer uniform rates on deposits up to Rs 1 lakh; and can offer differential rates for those above Rs 1 lakh. But there are finer points. The average CASA deposits of banks are of the order of about 35 per cent; Of these, about 60 per cent are below the Rs 1 lakh category.Secondly, the SB rates are 4 per cent. Suppose one bank decides to offer say 5 per cent and other banks decide to follow suit, it will push up cost of deposits. Banks with large SB deposits will suffer the most as they have to put up with higher cost of deposits. The differential rate on high value deposits has the potential to substantially increase the cost for banks as customers, especially the ‘High Networth Individuals will start demanding high interest rates , higher than what prudential ALM practices may permit them. If banks try to offset the pressure on margins by hiking base rates, borrowers will suffer and more delinquencies may happen.
- G.K.Murthy, Bangalore (HBL)
Holding firm for all PSU banks in offing
... the Reserve Bank of India (RBI) pointed to urgency need for capital infusion into public sector banks in view of rising bad assets. ...
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Tirupur exporters concern over RBI rate hike
The time has come for the RBI to provide for a separate chapter for exporters to insulate them from fluctuations in interest rates, according to the Tirupur Exporters' Assn (TEA)......Read..............
Paypal in charge of revenge against RBI strictness
After the revelation regarding the latest rip off from Paypal in yesterday’s report published PayPal RIP OFF tracked by Times of Assam, it has come to light that over 2000 accounts of Indian PayPal users have been suddenly made permanently limited, which means all these Indian accounts are permanently frozen and can’t be appealled against this act of PayPal. The same story applies to all these 2000+ Indian users; – they have been suddenly notified about their accounts getting permanently limited without an exact or strong reasoning except few possibilities thrown at them. It is strange and uncanny that such a high number of Indian user accounts were frozen suddenly with some illogical mail which doesn’t have any explanation why the accounts were permanently limited. It is to be mentioned that this recent dictatorship or bias from Paypal is the company’s reply to the strictness shown by the Reserve Bank of India (RBI) against the modus-operandi of Paypal. The Paypal services were always questioned as the Organisation tried to become a virtual or online bank, without following banking norms. As such the RBI had enforced strict rules and regulations which Paypal had followed, but adding their own spices to cook further inconvenience to the Indian users. The closure of over 2000 Indian user accounts without proper reasoning seems to be Paypal’s stubborn reply to the strict Indian policy implemented by the RBI.
Times of Assam
Maharashtra makes way for e-payment of stamp duty
To bring in more transparency, the Maharashtra government will launch e-payment gateways for stamp duty and registration charges. The government would also facilitate payment of stamp duty for leave and license deals through the internet by applying digital signatures. These initiatives are part of the 32 key resource areas (KRA) fixed by the state to increase the pace of development and revenue collection. "The Central government and the Reserve Bank of India have given their approval for the introduction of e-payment for the collection of stamps and registration, which is the second highest after value added tax and sales tax in the state. The idea is to make payment possible through credit and debit cards. The government had mobilised Rs 12,500 crore through stamp duty and registration in 2010-11 and it has set a target of Rs 15,000 crore for 2011-12. So far, in view of the current economic slowdown, especially in the realty sector, the state could mobilise Rs 5,000 crore during April-September, which is 32 per cent of the target," said a senior government official. The launch of e-payment aims at creating a hassle-free environment for the recovery of stamp duty and registration charges. The official admitted that the e-payment initiative would reduce interface between the government employees and tax payer and thereby curb corrupt practices.
BS
Dhanlaxmi Bank shrugs off charges of misdemeanour
....The Indian banking system in general and the private sector banks in particular, including Dhanlaxmi Bank, are subject to healthy supervision in the form of regulations from the Reserve Bank of India. .....
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Thursday, October 27, 2011
RBI frees savings bank interest rates
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Dr D. Subbarao, RBI Governor, and Dr Subir Gokarn, Deputy Governor, during the announcement of half yearly review of its monetary policy in Mumbai on Tuesday |
In a move that could bring cheer to bank depositors, the Reserve Bank of India on Tuesday announced deregulation of the interest rate on savings bank deposits with immediate effect. In its second quarter review of the monetary policy for 2011-12, the RBI also upped the short-term interest rate at which it lends (repo rate) to banks from 8.25 per cent to 8.50 per cent to curb persistent inflation, which continues to be above its comfort zone. In the run-up to the deregulation of savings bank rates, the central bank had directed banks to pay interest on these deposits on a daily product basis with effect from April 1, 2010. Banks currently pay 4 per cent on SB deposits. The RBI said that henceforth each bank will have to offer a uniform interest rate on SB deposits up to Rs 1 lakh. In the case of SB deposits over Rs 1 lakh, banks may provide differential rates of interest. YES Bank responded to the RBI deregulation move by increasing the interest rate on all SB deposits by 200 basis points (1 per cent change is equal to 100 basis points) to 6 per cent. The bank also upped the Base Rate (the minimum lending rate) by 25 basis points to 10.5 per cent. “Most banks are not in a hurry to hike the interest rates on SB deposits as liquidity is comfortable. So they would not be very keen or desperate to raise the rates and lose the cost advantage. In any case, depositors looking for higher yields have moved into fixed deposits or into liquid mutual funds,” said Mr Pratip Chaudhuri, Chairman, State Bank of India.
Even as it upped the repo rate, the RBI held out the hope that the current cycle of monetary tightening may be coming to an end. Immediate transmission of the repo rate hike to lending and deposit rates is unlikely, say bankers. They fear that raising lending rates further could jeopardise credit growth. “Our compulsion to raise the lending rates would happen only if deposit costs go up. As of today, all the banks are seeing good inflow of retail deposits and liquidity is plentiful. And credit demand is not very strong. So, if deposit costs don't go up, there is no immediate need to raise lending rates,'' said Mr Chaudhuri. “Changing the policy stance when inflation is still far above the tolerance level entails risks to the credibility of the RBI's commitment to low and stable inflation. However, growth risks are undoubtedly significant in the current scenario, and these need to be given due consideration,” the Governor, Dr D. Subbarao, said at a press meet. Pointing out that the year-on-year headline wholesale price index based inflation has remained stubbornly high during the financial year so far, averaging 9.6 per cent, the RBI expects high inflation levels to persist for two more months. The likelihood of a rate action in the December mid-quarter review is relatively low due to the expected outcomes of inflation moderating to 7 per cent by March 2012 and even further in the first half of 2012-13. Beyond December, if the inflation trajectory conforms to projections, further rate hikes may not be warranted, the RBI said. The GDP growth projection for 2011-12 has been revised downwards from 8 per cent to 7.6 per cent.
HBL
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