The NR EYE: Banks innovate as RBI deregulates deposit rates

Non-resident Indians (NRIs), particularly those with families back home, have some more reasons now to remit more money. The latest one was given by India’s central bank, the Reserve Bank of India (RBI), when it freed the interest rates that banks could offer their clients on savings accounts. In an earlier move, the apex bank had hiked interest levels to make even the non-resident bank accounts more lucrative. On their own too, several public and private sector banks in India have been innovating beneficial products and schemes for overseas clients. In a move late last month, RBI threw out the last vestige of the regulated interest rate regime. Now, the rates applicable to only NRI deposits are regulated but that is also likely to go as and when India adopts capital account convertibility. In a notification, the central bank said banks were now “free to determine their savings bank deposit rate” with immediate effect. Within hours the private sector Yes Bank hiked its savings bank account interest rate by two percent. Soon, it was Kotak Mahindra Bank ltd., and others are expected to follow suit as competition to woo savings bank depositors hots up. Savings account rates have traditionally been very low and have never matched up to the high rates of inflation. It would actually mean that keeping money in a savings account was a loss-making proposition. Yet, we must understand that most people have been keeping large sums in savings accounts simply for mthe reason that their salaries are credited to such accounts and most have lacked the knowledge and skills to quickly deploy it to other more fruitful investment options. The savings account rate remained static at 3.5 percent for more than eight years before it was hiked by 0.5 percent in April this year. Now some banks are offering up to six percent on such deposits. Until 2010, the average cost for banks for such accounts was at around 2.8 percent because they used to pay interest only on the minimum balance kept between the 10th and the end of a month. From April, they have been paying interest rate on a daily average basis. Regulations of deposit rates were first enforced in September 1964. In September 1969, RBI banned interest payment on current accounts and deposits of up to 14 days. From 1979 onwards, almost all deposit rates were administered. In April 1992, banks were allowed to fix interest rates on term deposits of 46 days to three years and more within the ceiling prescribed by RBI. In October 1995, banks were given the freedom to fix rates on domestic term deposits over two years. It was only in October 1997 that interest rates on term deposits were totally deregulated. A year later, the minimum maturity of term deposits was reduced from 30 days to 15 days and it dropped further to seven days in 2002, only for wholesale deposits of at least `1.5 m. Now even retail customers can keep any amount for seven days. Meanwhile, public sector lender Indian Bank has revised its Foreign Currency Non-Resident and Non-Resident (External) deposits interest rates. For FCNR(B) deposits, in USD terms, the revised interest rates has been fixed at 1.94 percent as against 1.86 percent for deposits of one year and above but less than two years. For deposits of two years and above but less than three years, it has been revised to 1.61 percent from 1.56 percent during the same period of previous year. The rates for deposits of three years and above but less than four years has been hiked to 1.77 percent from the existing 1.72 percent. For deposits of four years and above but less than five years has been fixed to 2.05 percent from the existing 1.98 percent. For deposits of five years only, the interest rates has been hiked to 2.37 percent as against existing 2.24 percent. For NR(E) term deposits, the revised interest rates has been fixed at 2.69 percent for one year and above but less than two years (2.61 percent existing). For two years and above but less than three years it has been fixed at 2.36 percent from 2.31 percent. The bank said that for deposits of three years and above and up to five years the rate has been fixed to 2.52 percent. On its part, the Kerala-based old-generation private lender, Federal Bank, has started accepting FCNR deposits in three more currencies and also hiked the interest rates on non-resident term deposits. FCNR deposits in the US dollar will get 1.94 percent to 2.69 percent in select maturities. The State Bank of Hyderabad has launched a new product which will give double benefit to customers. A customer who deposits, say `1,000, in this scheme will see it double in just 87 months. The yields achieved are 13.84 percent (general customers) and 14.56 percent (senior citizens) respectively. There will be no premature penalty if the customer withdraws the deposit after 60 months, in addition to the higher rate of interest. The product would be available to all resident.

http://www.thepeninsulaqatar.com/india/172544-the-nr-eye-banks-innovate-as-rbi-deregulates-deposit-rates.html

RBI forex check only if rupee very volatile

The Reserve Bank of India on Tuesday said it would not be changing stance on the policy of exchange rate management. Which is, it maintained, no intervening to help a falling rupee till it saw extreme volatility. “Our approach to the rupee is that we are not targeting any specific rate. We intervene when there is extreme volatility. The objective is only to smoothen that volatility,” said Subir Gokarn, deputy governor. He was clear on there being no coming to the rescue for traders who hadn’t hedged their risks. RBI had intervened in the foreign exchange market in September. The rupee closed at 50.67 to the dollar on Tuesday, as compared to 50.29 yesterday. Also, with successive devolvement of government securities and benchmark yields around nine per cent, RBI says it will concern itself with maintaining adequate liquidity in the economy. "RBI does not target yields; our objective is to manage liquidity," said Gokarn. If the underlying driver of high bond yields or any kind of distortion is liquidity, then the solution is to address the latter issue, Gokarn added. Adding: “Borrowing (by banks) through the LAF (Liquidity Adjustment Facility) has been above the one per cent benchmark and government cash balances have been negative. We will be watching these patterns closely, to know if they are temporary or likely to persist.” Responding to criticism on the ineffectiveness of successive rate rises on monetary transmission, he said transmission was reasonably effective when liquidity was in deficit and even though banks may say they are not going to pass it on, the data shows otherwise. "Banks may not change base rates but they will certainly negotiate on spreads or they may turn down the requests. Either way, the transmission is being achieved," said Gokarn. A majority of banks have kept their base rates unchanged despite consecutive rate increases of 25 basis points each.

BS

Bank employees threaten strike

The All India Bank Employees’ Association has threatened a strike if banks proceeded with a bailout proposal for cash-trapped Kingfisher Airline. The association also alleged banks had bought the airlines’ shares for 260 per cent more than market prices, and that there had been over-valuation to accommodate the airline. The body has demanded a parliamentary probe into the purchase of shares. Any bailout of the airlines by banks or the government would be anti-national, said the association’s general secretary, H Venkatachalam.

BS

Panel reports on banking, insurance Bills may be delayed

...One of the key provisions of the Bill proposes to confer power upon the RBI to call for information and returns from the associate enterprises of banking companies and inspect the same, if necessary. The RBI has indicated that without such a power, it would not be possible to issue new banking licences.....

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Must make audit reports of coop banks public: CIC to RBI

...“The best check on arbitrariness, mistakes and corruption is transparency, which allows thousands of citizens to act as monitors of public interest....

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Trim your costs, not your sails

This is not the first time that the Reserve Bank of India (RBI) Governor Duvvuri Subbarao has suggested that banks trim loan rates while offering more to their customers; at a Bancon conference in early 2010, the government had recommended much the same thing. In the central bank’s latest review of the banking industry, Subbarao says banks need to further push up operating efficiencies by optimising costs such as wages and salaries, transaction costs and provisioning. The Governor believes this would allow them to lower lending rates but not lose out on profitability..........

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Inflation won't affect RBI projections, says Gokarn

The decline in industrial output in September and the marginal rise in inflation in October would not affect the Reserve Bank of India's (RBI) projections for the year, Deputy Governor Subir Gokarn said on Monday. “We haven't seen anything that might suggest we need to revise that guidance...So, the guidance still stands, based on both the growth number and the inflation number…The Index of Industrial Production (IIP) growth was at the lower end of the possible range. It doesn't have an impact on the projection for the year as a whole,” Gokarn said. The RBI deputy governor said the inflation trajectory was in line with expectations and that the October policy guidance by RBI still held. He said the stance the central bank had factored in deceleration. In its October 25 mid-quarter review of monetary policy, RBI had hinted it may take a pause, provided inflation started easing from December. “How it plays out later on, particularly on dynamics of inflation, will clearly have an influence beyond the quarter. But for now, what we have said for December, and possibly for January, I don't think has been impacted,” Gokarn said. Wholesale price index-based inflation in October stood at 9.73 percent, marginally up from 9.72 per cent in September, as prices of food items rose. In September, IIP growth fell to a two-year low of 1.9 per cent, primarily due to poor manufacturing sector output. “If you look at our month-by-month projection in our policy statement, it's very close to what we expected, both the headline and the core inflation. So, in that sense, the trajectory seems to be holding up,” Gokarn said, adding the interest rate cycle may have peaked.

BS

CENTRAL BANK’S DILEMMA - The economy will benefit if licences are given to rural banks

The Reserve Bank of India controls how many banks may compete for our business. It has not licensed any bank in ten years. Meanwhile, Indian banks’ margins continue to be amongst the highest in the world: they pay depositors a pittance, and charge borrowers through the nose. Not that they make unreasonable profits; they just incur extraordinarily high costs. To put it slightly differently, they are extremely inefficient. That they can remain so has much to do with the fact that the RBI has protected them from competition; it is reasonable to infer that the RBI has not given licences to fresh banks because it does not want banks to have to face competition. As I have put it before, the RBI is the mother of government banks; it protects them like a doting mother, and makes sure they fatten themselves. That is good business from the government’s point of view; there is no reason for any government type to lose sleep over it. But then, the present government has another obsession, namely inclusive growth. The commonsense meaning of this piece of officialese would be that income distribution should improve, or at least not worsen. A commonsense government would therefore make taxation more progressive, or reduce tax evasion. But our government cannot or would not do that. It prefers to give handouts to the poor. If it collected more taxes, it would become unpopular. If it distributes handouts, those whom it favours will hopefully vote for the ruling party. That is the political arithmetic.

That is my interpretation. How does the government think? How would it justify perpetuation of oligopoly in banking? The finance minister does not bother to talk about such things; but recently, an explanation of sorts has emanated from the mother of banks. K.C. Chakrabarty, the deputy governor of RBI, gave a speech in Chennai in the first week of November, drafted by Dr Mridul Saggar. It had never struck me that the reason why the RBI protects government banks is that if they could not face competition and had to contract, they would not be able to afford so many employees. They employ a million workers. One would never imagine that; when one goes to the bank, one does not find them falling over each other to serve one. But they are why the RBI has protected banks from competition, and reneged on its promise to allow more foreign banks in. But now it is preparing to change its tune, because the primary reason for its abhorrence of competition, namely too many employees, is about to disappear. A large proportion of the employees was taken soon after nationalization of 14 banks in 1969, and more after another seven were nationalized in 1980. Many of these workers are about to retire. So the fears of redundancy arising from competition have receded; the RBI does not mind if new workers are brought in by new banks. Old banks are still against it; they have been telling the RBI that the economy is slowing down, that it will raise their bad debts and reduce their profits. That is a bad time to have to face new competition. The RBI is hesitating, but trying to persuade the old banks.

Another reason for the RBI’s change of mind is the government’s fetish about financial inclusion. One would have thought that the way of making the poor less poor was to give them more money. But our government thinks differently; it thinks that they should be given more loans, so that they can renege on them. So the RBI has devised a “package” that would become a fundamental right of the poor; it would include four “products” to use officialese — a savings account with overdraft facility, a remittance “product”, a long-term deposit “product”, and a credit card.

But there is a problem in extending the package to all the poor: many live far away from bank branches. The RBI has been trying for decades to make banks open branches in villages; but they do not like it. There are no good schools or doctors in villages, and bank employees do not like to be stationed there. The RBI thought of another solution called bank correspondents: they would be agents instead of employees. But then banks would not have much control on them, and would not like to leave much cash with them, and without cash, the correspondents would not be able to service depositors’ accounts. Something like this has been tried out in Kenya which I have just been to see. There, a company called Safaricom has opened windows in shops all over the country. Anyone can go to one of the branches, pay in money, and ask the girl to transfer the money to his wife in some village. He then rings up his wife on his cellphone and asks her to go and collect the money; the girl rings up her Safari colleague on her cellphone and asks her to pay the wife, and the transaction is made. Behind the village branch, there is a local rich man — a shopkeeper or transporter, for example — who puts up the money temporarily if there is a shortage. That is how M-Pesa started; now the system also takes deposits from clients and gives credit. So it started as a money transfer system, and has developed into a deposit bank. One reason why M-Pesa worked in Kenya and bank correspondents have not in India is that Safaricom is virtually a monopoly. It is not so legally, but because it was the pioneer, it had the field to itself. In India, a problem would arise if there were only a couple of rich guys in a village and 20 banks competed for them. The other problem is in making the system profitable. M-Pesa makes good money on money transfers. In India, taking deposits would be a loss-making activity, and would have to be backed up by lending; banks may be prepared to let correspondents handle deposits, but would not like them to be giving out loans on their behalf. The problem arises because banks have no knowledge of villagers and do not know whom to lend and whom not to. Local rich guys would; but they would already be local moneylenders, and there is no reason why they should give up their own moneylending business and do it on behalf of the banks. There is a deep prejudice against moneylenders amongst our rulers, going back 150 years; now they find they cannot extend banking to villages without turning to moneylenders. And the moneylenders would not serve banks; they are banks already. The obvious solution would be to give rural bank licences. But the most eligible people for those licences would be moneylenders. The official types loathe the moneylender, and they cannot find anyone else who could run banks with any chance of success. So they will keep bumbling. And every once in a while, they will lose their cool and do something stupid like banning microfinance institutions, as they did in Andhra Pradesh. Competition can eliminate inefficient banks, but not mindless governments.

The Telegraph 

Women use their debit cards less frequently, reveals RBI survey

This piece of information may give you some insight into how women deal with money. The Reserve Bank of India, in a survey, has found that they use their debit cards less frequently. What one could deduce from this finding is that women prefer to use credit cards for shopping to avail themselves of the 45-day credit period. But when it comes to hard cash for daily needs, it is the hubby who swipes the debit card at an ATM. “Women may be smarter when it comes to money matters. The 45-day free credit period that comes with shopping with a credit card is an irresistible attraction,” said Mr Sanjay Sharma, Managing Director IDBI Intech, a banking and financial service technology provider.  The number of debit and credit cards outstanding as at September-end 2011 was 25 crore and 1.76 crore respectively. Some of the other findings of the RBI's survey to assess customer satisfaction in the usage of ATMs across the country are: the use of cards for shopping was more among the youth; the use of debit cards for shopping was the highest in Maharashtra and Andhra Pradesh. Further, debit cards were mainly used for withdrawing cash or shopping purposes and the use of these cards for bills payment/ticket purchase was still low. The survey covered 600 ATMs distributed proportionately over metro, urban, semi-urban and rural regions, constituting one per cent of the total number of 60,000 ATMs in the country.

HBL

Obituary

Shri.S.G.Birje passed away on 10th November 2011 in Mumbai. He was 71 years old and had served the Bank for over thirty five years. He retired as Grade B Officer from U B D. May his soul rest in peace.

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

Consumers' complaints against public sector banks on the rise

Pensioners may soon feel more welcome at public sector bank counters, as the Reserve Bank of India (RBI) has asked public sector lenders to improvise their pension services. According to an RBI survey on complaints on pension services, 95 per cent were unhappy with the services of public sector banks. “The area in which the public sector banks have to pay attention is pension services,” RBI said. The total number of complaints on pension for all scheduled commercial banks stood at 5, 810, of which 5,746 were against public sector banks. State Bank of India (SBI), the country's largest lender, accounted for 4,000 of the total complaints. SBI’s profits declined 99 per cent in the last quarter of the previous financial year on account of provisioning for its deferred pension liabilities. Public sector lenders were also ahead of the Indian banking industry, with respect to complaints. While the number of complaints declined for banks, public sector banks saw a rise in customer complaints. The total number of complaints dropped 12 per cent to 66, 927 in 2010-11, compared to the previous year. For public sector banks, complaints rose two per cent to 42,724.

BS

RBI rejects proposal of leasing mortgaged land to recover dues

Chandigarh : The Reserve Bank has turned down the Haryana government''s proposal that mortgaged land of farmers, who have defaulted on their loans, be managed under lease arrangements instead of auctioning it for recovery. Describing the Haryana government''s proposal as non-feasible and non-viable, the central bank observed that if the proposed system is implemented, it will "vitiate the credit atmosphere" and will also cause diversion of banks'' resources without any substantial gain on recovery front. A senior official of Punjab National Bank, which is the convener bank of State Level Bankers'' Committee (SLBC) in Haryana, today said the Reserve Bank of India (RBI) has examined the proposal of the Haryana government. "Such a scheme of lease arrangement will neither be feasible nor viable in the state," he added. The RBI, in its latest communication to the convener bank, further observed, "The scheme may invite legal complications for banks and credit to farm sector might be adversely affected." Haryana Chief Minister Bhupinder Singh Hooda had asked the RBI Governor D Subbarao in October last year that in case of loan default, land of a farmers held as collateral security by commercial banks should not be auctioned and instead it should be managed under lease arrangement. Under the lease arrangement proposal, fifty per cent of the income generated from lease arrangement should be used for realisation of bank dues, while 50 per cent should be given to the defaulting farmer. In addition, the land should be restored to the farmers once the full amount is recovered. After this proposal, SLBC constituted a sub-committee under the chairmanship of Secretary (Agriculture), Haryana, which decided to test the efficacy of the lease arrangement scheme, though bankers and NABARD opposed the same. The matter was then referred to the RBI by SLBC Haryana in June and September this year for its nod.

MSN News

Global banking system is fraught with uncertainties: RBI

The Reserve Bank on Monday said the global banking system is fraught with many uncertainties due to the ongoing sovereign debt crisis in Eurozone and asked for concerted action from both the developed and the emerging economies for its revival. "The near-term outlook for the global banking system is fraught with many uncertainties, some of which are beyond its direct control," the Reserve Bank of India (RBI) said in its report titled 'Trend and Progress of Banking in India 2010-2011'. Elaborating on the risks faced by the global financial system, the central bank said downside risks and challenges outweigh the positive efforts towards revival. "The downside risks are manifold and arise not just from within the banking system but also from the financial system in general, fiscal conditions and state of the global economy," the report said. It, however, noted the fact that there was a marginal improvement in capital adequacy and profitability of the global banking system in 2010-11. The RBI also pointed out that global financial system, which had faced a crisis in 2008-09 due to mortgage loan defaults in the US, is still vulnerable to various downside risks. "The global banking system, however, stands weak on many counts after the crisis (US mortgage). First, the system as a whole and most advanced economies, especially the fiscally strained economies in the Eurozone, still show very weak credit growth," the report said. It added that the ongoing sovereign debt crisis in Eurozone has created credit, market and funding risks in these economies. "Onset of sovereign debt pressure since early 2010 have given rise to renewed credit, market and funding risks in the eurozone economies with troubled sovereigns, as well as the peripheral economies of Germany, France and the UK, whose banks are either directly or indirectly exposed to these sovereigns," the apex bank said. The report added that despite attempts of deleveraging by the global banks, leverage ratio is still very high for them. It added, "While growth and soundness of banks in advanced economies are at a low, the credit growth in emerging economies has been high leading to concerns about overheating of these economies."  It added that high levels of inflation coupled with increasing short-term capital flows into these economies have further raised concerns about financial stability.

NDTV Profit

RBI voices concern over State Govts regulating microfinance institutions

...If State Governments start enacting their own legislations to regulate micro-finance institutions (MFIs), including the ones regulated by the Reserve Bank of India, there will be plurality of regulation leaving scope for regulatory arbitrage, says the report on ‘Trend and Progress of the Banking in India 2011-12'. ....

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Banking policy decisions in sync with economic growth: RBI

The Reserve Bank today said the banking sector policy during 2010-11 remained consistent with the broader objective of macroeconomic policy of sustaining economic growth. "The RBI has introduced important policy measures of deregulation of savings bank deposit rate and introduction of credit default swap (CDS) for corporate bonds," the Reserve Bank of India (RBI) said in its report -- 'Trend and Progress of Banking in India 2010-2011'. It also said important policy discussions, like issuance of new banking license; designing the road-ahead for the presence of foreign banks and holding company structure for banks had been initiated in the 2010-11 period.  Emphasising on financial inclusion, the central bank said that one of the most note-worthy development was the formation of board-approved financial inclusion plans by banks for a time horizon of the next three years. Going forward, the central bank said its policy would focus on financial stability and financial inclusion.

NDTV Profit

Customer service slips in public sector banks

Coimbatore  : While a good number of people generally state that they prefer to have their accounts in state-run banks, citing safety as the most important criteria, the banking regulator's findings reveal that customer service complaints against public sector banks have risen in 2010-11 as compared to those against private sector and foreign banks. ‘Customer satisfaction is an integral element in inculcating trust among the common people on the banking sector,' states the Report on Trend and Progress of Banking in India 2010-11. Understanding the importance of customer service in banking, the RBI set up a separate customer service department in 2006 as also Banking Ombudsman (BO) offices in 15 major banking centres. The BO has since proved to be a forum for redressing complaints received from customers. According to the latest Trend and Progress report, the number of complaints received by the banking ombudsman has dipped in 2010-11 to 71,274 from 79,266 in 2009-10. The decline in complaints has been more visible in the BO offices in Chennai, where it fell from 12,727 in 2009-10 to 7,668 in 2010-11, in New Delhi from 12,045 to 10,508 and in Mumbai from 10,058 to 7,566. In the midst of this declining trend, Bhopal, Patna, Ahmedabad, Chandigarh and Guwahati reported an increase in the number of complaints. The report further points out that the number of complaints per branch was high for foreign banks at 22.34, with almost a-fourth of the total received against credit/debit/ ATM cards. The second largest number of complaints was with regard to pension followed by loans and advances. More than 90 per cent of the total complaints relating to Direct Selling Agents (DSA) were received against foreign banks and new private banks in 2010-11 and 50 per cent (of the total complaints) related to hidden charges. Such complaints were found to be relatively less in public sector banks. Pension-related complaints were instead quite high, accounting for almost 95 per cent of the total complaints, in public sector banks. The RBI had constituted a Committee under the Chairmanship of the former Chairman of SEBI, Mr M. Damodaran, to examine banking services rendered to retail and small customers, including pensioners in 2010.  The Committee was also mandated to look into the grievance redressal mechanism prevalent in banks, suggest measures for expeditious resolution of complaints. The committee interacted with various stakeholders on all aspects of customer service, including attitude of bank staff towards small and rural customers, service charges, transparency in operations, grievance redressal, customer rights and expectations, among others.

HBL

Large financial firms will be closely monitored: RBI

Considering the multi-national presence of large financial institutions and their role in the current global economic environment, the Reserve Bank of India (RBI) is keeping a close watch on such institutions in the country. The central bank has set up a ‘financial conglomerates monitoring division’, which is currently overseeing twelve institutions that account for 53 per cent of the banking sector’s total assets. RBI Governor D Subbarao on Monday said many Indian banks had grown to become ‘financial conglomerates’, and this posed regulatory challenges like the absence of an adequate legal framework and a limited inter-regulatory co-operation framework. He said the central bank had started carrying out stress tests under various scenarios, as part of the half-yearly financial stability reports. “An important task would be drawing up resolution plans that explicitly take into consideration information on inter-linkages among institutions,” Subbarao said, while addressing the International Association of Deposit Insurers conference in Jodhpur on Monday. To minimise the depositors’ woes in case of a bank failure, the central bank has asked the government to exempt bank mergers from the provision in which the Competition Commission’s approval is required. “The commission has been allowed up to 210 days to decide on it before the default clause kicks in. This further complicates the resolution of banks through mergers and the uncertainty can be potentially destabilising,” Subbarao said. There is a need to review whether granting an extended mandate to the Deposit Insurance and Credit Guarantee Corporation (DICGC) in resolution of failing banks would help in faster settlements to depositors and lower costs, he said. He added the dual control led to delays in resolution of urban-cooperative banks--- the appointment of liquidators, gathering of information about depositors, depositor payouts and the recovery of assets. The central bank shares supervisory authority with central or state governments. Subbarao said DICGC funds were largely used for the payout of urban co-operative banks, though commercial banks were the major contributors to the funds. He said, “The fund maintained by DICGC appears adequate, but it is not clear whether the fund would be able to meet claims arising from the putative failure of a couple of small or medium sized commercial banks.”

BS 

RBI recipe to boost bank savings kitty

... In its report on Trend and Progress of Banking in India that was released here today, the central bank said there was a need to raise the level of domestic savings and channel those savings into investment to maintain the momentum of India’s economic growth....

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RBI for comprehensive law to deal with solvency in financial sector

The Reserve Bank of India (RBI) today pitched for a comprehensive legislation to deal with the solvency problems in the banking and financial sector, and to protect it from the impact of the global crisis.  "Addressing these questions (relating to risks in the financial sector) will require some fundamental changes in our legal and regulatory framework," RBI Governor D Subbarao said here while addressing a conference. The first challenge, he added, "is developing a comprehensive legal framework for resolution that covers all the different types of financial institutions". Subbarao said the "legal framework governing bank resolution is spread all over, making the framework complex and often time non-transparent". He said the financial crisis has underscored the importance of rapid resolution to arrest contagion and restore stability. "Even as we have been able to resolve problems of banks so far, it is not clear if our resolution framework has been put to severe test," Subbarao added. The resolution methods used in India are assisting troubled banks in restructuring or merging it with a strong institution. Subbarao said that even as failures of commercial banks have been rare in India, failures among urban-cooperative banks are quite common. He said the RBI has a 'Board for Financial Supervision' to review banks supervisory functions and monitors the performance of banks, especially weak banks.

NDTV Profit

Now, earn up to 16.53% returns from PPF

... Experts say the hike in interest rate has made the PPF the best option for conservative investors.....

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Are market-linked small savings attractive?

... Though the rates have become dynamic, our investment advice with respect to the two most popular investment vehicles from the stable of NSSF—PPF and SCSS—doesn’t change. They remain attractive investment vehicles in the long term for post-retirement income.....

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Here's the real picture behind rising NPAs

The RBI says total gross bad loans in FY11 fell to 2.25% of total loans from 2.39% but this hides the real picture. CNBC-TV18’s Latha Venkatesh reports with some interesting details from the RBI report on bank bad loans.  The RBIs report indicates a mixed picture on NPLs but largely positive. It says gross NPAs in FY11 actually fell to 2.25% from 2.39% in the previous year but this could be a understatement because a lot of loans got written off. 10% of the gross NPAs of the previous year were written off. What happened when you write off loans is the total amount of advances itself shrinks. So the percentage of bad loans looks a little better. Likewise if you looked at restructured loans that also rose rather significantly from 2.16% of total standard loans in FY09 to 3% in FY10 to 2.66% in FY11, so since a lot of loans were restructured following Lehman that also made the gross NPLs look a little smaller, perhaps understated. RBI has done a stressed analysis. If you assume that all the restructured loans will go bad then the gross NPLs rise to 5% but separately bankers tell us that only about 20% of the restructured loans actually went bad and therefore perhaps the picture is not all that disturbing. Also banks increased their provisioning requirement because of RBIs rules. Total amount of provision cover rose from 51% to 55% in FY11. Therefore net NPAs rose very slowly, rose only by 8%. The other important point that RBI points out is recoveries have been somewhat rising. Banks recovered 57% of their outstanding gross loans as of FY10. That is not very good.  In several other countries the recoveries are much higher…but this is because of the SARFESI Act, debt recovery tribunals and Lok Adalats.  There have been an increasing number of cases addressed through both the SARFESI as debt recovery tribunal.

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RBI asks banks to guard asset quality, tighten risk management

....“Asset quality of banks needs to be closely watched in the changing interest rate environment as the sticky loan portfolio of small and medium enterprises might rise,” ..........

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Effective corporate governance vital, banks told

Being at centre of the economy, banks must ensure effective corporate governance to avoid the spread of failures to the financial system, the Reserve Bank of India (RBI) has said. Issues related to corporate governance that need adequate attention include bank ownership, accountability, transparency and ethics compensation, RBI has said in the Report on Trend and Progress of Banking in India. Splitting the posts of chairman and chief executive officer in banks and corporate governance under a financial holding company structure also deserve adequate attention, it said. Banks are interconnected in diverse, complex and opaque ways, underscoring their 'contagion' potential. If a corporate fails, the fallout can be restricted to stakeholders. But if a bank fails, the impact can spread rapidly to other banks, with potentially serious consequences for the entire system, the central bank said. It added the corporate governance of banks was not only different, but also more critical. Banks are the conduits of monetary policy transmission and constitute the economy's payment and settlement system. Also, by the very nature of their business, banks are highly leveraged, the report said. Banks accept large public funds as deposits in a fiduciary capacity and further leverage these funds through credit creation, RBI said. Regulation has a role to play in ensuring robust corporate standards in banks. However, though effective regulation is necessary, it is not a sufficient condition for good corporate governance, RBI added. 

BS

Moody’s says meeting with Indian govt, RBI routine

Singapore: Moody’s Investor Service’s meetings with Indian government and Reserve Bank of India (RBI) officials on Monday were pre-arranged and are not linked to the downgrade of the country’s banking sector outlook last week, a senior analyst said on Monday. Moody’s has currently assigned Baa3 rating for India, the lowest investment grade rating, with a stable outlook. “This is a regular annual visit that we have with all governments globally,” Thomas Byrne, the agency’s senior analyst for Asia-Pacific sovereign ratings told Reuters. “The purpose of this meeting is to go to India and kick the tyres… The negative outlook refers to banking sector performance and doesn’t necessarily correlate to sovereign performance,” he added. Moody’s last week cut its outlook for India’s banking system to “negative” from “stable”, and warned that slowing growth at home and overseas were hitting asset quality, capitalisation and profitability. There has been some speculation in the Indian media that the meetings, coming so soon after this move, could suggest that the country’s credit-worthiness is at risk.

Firstpost

RBI's concern over uneven credit growth

......The report conveys that despite challenges, the banking sector in India can look forward to enormous opportunities in their quest for long-term growth. In the long-term, the RBI said, banks need to build on four principles, namely, efficiency, stability, transparency and inclusion. ..............

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RBI cancels banking license of Gujarat Industrial Co-operative Bank

The Reserve Bank of India Monday cancelled the license of Gujarat Industrial Co-operative Bank (GICB) as it ceased to be solvent. The RBI delivered the order cancelling its licence to the bank on November 11, after all efforts to revive it in consultation with the Gujarat government had failed. The Central Registrar of Co-operative Societies, has also been asked to issue an order for winding up the urban cooperative bank and appoint a liquidator for it, an official statement said today. On liquidation, every depositor of the bank shall be entitled to repayment of deposits up to a monetary ceiling of Rs one lakh, from the Deposit Insurance and Credit Guarantee Corporation (DICGC), it said. The revival plan submitted by the bank in 2010 was considered, but was found to be not viable as it was not in conformity with the RBI guidelines, it stated. The merger proposal from Saraswat Bank, Mumbai failed to materialise, it said. The inspection of the bank by RBI on 31st March, 2010 showed its deteriorating financial health. The bank's net worth and Capital to Risk Weighted Assets Ratio (CRAR), the ratio used to protect depositors and promote stability, had gone into negative. The bank's net worth and CRAR went in negative and stood at (-) Rs29,184.18 lakh and (-) 365 per cent, respectively during an inspection on 31st March,2010, the statement said. The assessed net loss of bank stood at Rs3,963 lakh as against reported net loss of Rs3,872.93 lakh. The gross and net non-performing assets (NPA's) formed 85.4 and 21.3 per cent of the gross and net advances respectively. A criminal complaint has been filed by the administrator of the bank against the ex-Board of Directors for their acts of omissions and commissions leading to huge losses to the bank, the statement said. The RBI issued several show cause notices to the bank asking it as to why the licence granted to it on September 29, 1999 to conduct banking business should not be cancelled. 

DNA

Making way for Margazhi

...“Our endeavour has always been to honour people from different fields and walks of life by inviting them to participate. This year too, S. R. Nathan, the former president of Singapore and Dr Y. V. Reddy, the former governor of RBI, will be special guests,”...

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Did RBI goof up on the Dollar?

When an earnest looking Subbarao and his imposing Deputy Subir Gokarn tell the world that the RBI will not prop up rupee to rein in inflation, currency traders rub their hands in glee. For them, it's another opportunity to make money: buy dollar and sell it a few days later, with the central bank promising to stay out of the market. The RBI top brass isn't exactly saying anything unusual.  It's a line that central banks and monetary authorities of all IMF member-countries take, to make the simple point that they don't manage currencies which function as full floats. But when uncertainties are in the nature of 'unknown unknowns', sentiments swing with new and rapidly changing stories, and jumpy traders fish for every little window to recover losses, staid statements can be electrifying and communications can backfire. May be, the RBI should have kept the market guessing about its intentions, even if it had no plans to dump dollars. Views like these are a part of a chatter that Mint Street has goofed up on the dollar. That it let the rupee slip too low too fast. That it should have sold dollar more aggressively to unnerve speculators . That it miscalculated the demand-supply mismatch. That it should have known better than others that opening a few doors - like allowing corporates to take more dollar loans and foreign portfolio managers to invest more in local bonds - won't cause a dollar deluge. After all, global investors don't always rush in just because rules have been loosened. RBI backers have a ready rebuttal: when the dollar is gaining, trying to pull it down is a mindless and futile exercise; can you go on selling dollar when euro is on the brink; why dip into forex reserves, etc. While these arguments have a merit, a more assertive RBI could have turned the rupee's decline less dramatic for the market and less damaging for business. The US dollar index gained a little less than 4% since August 8 - the first trading day post US debt downgrade which marked the beginning of a new phase of volatility. While the euro fell 3% between August 8 and November 11, the rupee fell 10% against dollar. There are doubts whether the rupee's depreciation, one of the highest, can be largely attributed to the dollar's gain globally. But while most central banks have either acted or signalled that they would act to ensure "orderly movement" of their respective currencies and protect the real economy, the RBI has often been loud and explicit that it will not intervene.  Amid raging inflation and high crude price that drove oilcos to raise petrol prices, one wonders whether it made sense. The bulk demand for dollar in the past three months came from bunched up oil payment to Iran, defence payouts, regular oil purchase and FII outflow. Inflow dipped as global risk aversion grew. RBI officials may have felt that the outgo on account of Iran and inflow from a large high profile FDI deal would offset each other. But simple arithmetic went haywire as the dollar surged with more bad news from Euroland.  The sharp slide in the rupee, however, could have been tempered if the RBI had supplied dollar to the market and kept bulk demand from oil companies and PSUs off the market. It could have not only improved inflation and corporate earnings, but also upheld RBI's professed policy of maintaining "orderly movement in the currency market" .

ET 

Rural outreach programme conducted by RBI

TIMED CHORUS

Banks’ fortunes vary with those of the economy; as chinks appear in the economy, the banks’ future also becomes clouded. Stock market indices for banks have fallen about as much as general indices. In a sense, the downgrade in the banks’ outlook by Moody’s only summarizes the general deterioration in prospects. What is striking, however, is the reaction to the announcement. Almost as soon as the downgrade was announced, there was a collective dismissal of it. And, interestingly, every one of the dissenting voices was that of a banker. They were like school kids giving themselves pass marks. That is not how schools work; if schoolchildren could grade themselves, they would hardly bother to go to school. But that, apparently, is how bankers operate. If someone says that they are dangerous, they all shout immediately that they are safe. Is there anything surprising about it? If depositors believed stories about banks being in bad shape, they might run to get their money out before the banks close their doors. If enough depositors did that, bankers would be bound to lock doors and run. So the bankers’ behaviour is understandable. Unfortunately, that also makes it suspicious. Bankers have a strong incentive not to tell the truth, especially if the banks are in poor condition. In fact, the alacrity with which they rushed to give themselves certificates of good health suggests that the opposite may be the case.  In the circumstances, to whom can one turn to get an objective picture of the banks’ condition? One might think that the Reserve Bank of India put out reliable, accurate and up-to-date information. Unfortunately, the RBI last published figures of non-performing assets in March; and the latest figures it put out related to 2010. Bad debts can rise suddenly. There is news, for example, of Kingfisher Airlines not paying the bills of the Airports Authority of India. The second-quarter ratio of non-paying to total assets of the State Bank of India was 4.2 per cent, up from 3.4 per cent a year earlier. The spate of SMSs from real estate developers suggests that their inventories of apartments are bursting. This is all worrying news; but the RBI sits there, immovable and inscrutable like a sphinx. No doubt it will collect figures about the current NPAs and publish them two years later. But by that time, they will be history — and so may be India’s good fortune. Statistics are useless unless they are timely. The RBI may itself not have timely figures. But if so, that is its own fault. It does not have to wait for banks to send figures at the end of the quarter, in hard copy in triplicate. Today information technology experts have the capability to set up an inter-bank net that would give the RBI figures up to the second. It only has to wake up.

The Telegraph

India's Largest Annual Payments Conference

The payments industry is continuously seeing rapid growth, technological advancements and an entry of new entrants to the market. The size and complexity of financial markets in India have created significant payment and settlement interdependencies involving the banking system, money and capital markets, and associated derivative markets. RBI and the banking community have for many years pursued measures to strengthen the payment mechanisms, to increase processing efficiency, and to reduce payment system risks. Indian payments system stakeholders face strategic opportunities and challenges in developing new services and in providing for an efficient clearing and settlement infrastructure.

Banknet’s Annual Payments Conferences continue to act as India’s premier platform that assist in identifying emerging business opportunities and shape a well-defined strategy to meet the future trends in India's payment market. Now in its 8th year, Banknet's Annual Conference on Payment Systems is the largest payments event in India and has gone from strength to strength. It has on an average attracted around 300 senior executives from around the globe.

Banknet, the #1 organizer of Banking and Technology Conferences from India will organize 8th Edition of Conference on Payment Systems on 18th January 2012 at Taj Lands End, Mumbai. Conference will also feature a Technology Exhibition. Theme of the Conference is “A Strategic Roadmap for Innovations in Payments Landscape”

Conference will have a Round Table Session, which will be followed by specialized sessions with presentations & interactive panel discussions:-

Session II :- Implementing the Next Generation Electronic Payment Systems and Products
Session III:- Multi-Channel Delivery - from online to contactless, remote mobile payments and ATMs

Session IV:- Development and construction of various Risk Management & Security strategies
Session V:- Market Integration of Remittances and Payment Systems & Settlements

Top level executives from Reserve Bank of India, Major Public Sector, Private Sector, Cooperative, Foreign Banks, Regulatory Authorities, Insurance Cos, Technology Vendors, Business Schools and Management Consultancies will address the Conference. Senior level executives from nearly 100 organizations are expected to participate at the Payments Conference 2012. This conference will provide an opportunity for key providers and users of payments services to discuss & network.

Take Away from Payments Conference 2012- Get answers to the following :-

How to improve operational leverage to create efficiencies and reduce costs?
Where are the innovative spaces to optimize profitability?
Why banks must go beyond payments by involving users?
How to Create Strategic Value With What You Already Have?
How the smart players are moving into the adjacencies around payments. ?
Why is managing cost no longer enough to retain market share?
How can banks better compete with existing and new players (i.e. non-banks)?
How to serve the needs of clients in geographies you don't operate in?
What are the trends and emerging technologies in the payments industry?

http://www.banknetindia.com/

Value of cheque transactions down 1.4% in Sep: RBI

The total value of transactions carried out using cheques across the country amounted to Rs 7.64 lakh crore in September, 2011, down by 1.4% vis-a-vis the same month last year. Banks had cleared cheques worth Rs 7.75 lakh crore in September, 2010, according to Reserve Bank of India (RBI) data. The number of cheques cleared by banks in September, 2011, however, went up by 2.6% in comparison to the same month last year. A total of 11.12 crore cheques were cleared by banks during the month under review, compared to over 10.84 crore in the corresponding month of 2010. During the April-September period, the total value of transactions carried out using cheques stood at Rs 48.88 lakh crore, as against Rs 49.15 lakh crore in the same period a year ago, a marginal dip of 0.1%. In addition, a total of 66.62 crore cheques were cleared by banks during the first six months of the current fiscal, a decline of almost 3.5% from 68.37 crore in the April-September period a year ago. In September, the Mumbai region reported the highest number of cheque clearances, as well as the maximum transaction value for any zone. Banks in the Mumbai region cleared a total of 1.96 crore cheques, with total value of over Rs 1.26 lakh crore. In the Delhi region, banks reported that 1.29 crore cheques with a total value of a little over Rs 1.05 lakh crore were cleared in September. The Chennai region stood third, with banks reporting a total 62.5 lakh cheque clearances worth over Rs 44,600 crore. Cheque transactions have been on the decline during the past few years with the growth of the electronic transfer medium, according to experts. The value of cheque transactions in the country declined by 2.6% year-on-year to Rs 101.33 lakh crore in FY11. Delhi and Bangalore were the only major centres to report a rise in the value of clearances last fiscal. However, the total number of cheques cleared by banks across the country grew marginally by 0.4% in FY11. Over 1.38 lakh crore cheques were cleared by banks across the country last fiscal, as against 1.30 lakh crore in FY10.

BS

Has financial innovation led to faster growth?

... RBI is pushing commercial banks to open more branches in rural areas and speed up ongoing efforts towards financial inclusion. The regulator’s data shows that till June, Indian banks had opened banking outlets in 107,000 villages, up from just 54,258 in March 2010....

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Downgrading the banking system

The decision of Moody’s Investor Service last Wednesday to change its outlook on India’s banking system to ‘negative’ from ‘stable’ need not have come as a surprise. A month ago, Moody’s cut the standalone rating of State Bank of India, the country’s largest bank, citing concerns over capital and weakening loan quality. Some of these concerns have again been cited to justify the downgrade of the entire banking sector. There is no doubt that a slowing economy will witness a rise in loan defaults and they will have to be provided for. An increased recourse to provisioning will naturally impinge on the bank’s profitability. Besides, in a scenario of rising interest rates, banks will have to offer a higher interest on their deposits and this will naturally shrink their interest rate margins. It is also true that raising fresh capital will be more difficult and expensive in times of slowdown. Moreover, the global economic environment is chaotic and not conducive to the stability of the financial sector. These as well as the more specific factors responsible for slowing down the Indian economy — high inflation, rising interest rates, and monetary tightening — are easily understood. Moody’s decision has inevitably drawn strong criticism from the banks, the government, and many independent analysts, who are convinced that the Indian banking system is healthy and that banks are adequately capitalised. Problems in specific sectors such as power are no doubt a cause for concern, but they are not sufficient reasons for a general downgrade of the banking system. The Reserve Bank of India’s Financial Stability Report (June 2011) indicated that the domestic financial system remained stable “in the face of some fragilities being observed in the global macro financial environment.” Compared to their peers in developed countries, Indian banks are surely better regulated and do not deal in exotic products. The downgrade will raise the cost of borrowing by Indian banks in overseas markets. It is small consolation that Moody’s has assigned a ‘stable’ outlook to 14 of the 15 banks rated by it in India, even while downgrading the entire sector. It, however, helps that Standard & Poor’s, another large rating agency, has chosen to upgrade India’s banking sector, the very next day. The rating process does not quite capture the strengths and weaknesses arising from government ownership of a majority of banks. One important source of strength is that the government remains committed to providing capital to the banks. On the other hand, the downgrade of SBI was primarily caused by the government’s procrastination about subscribing to a rights issue of shares that the bank has been planning for quite some time.

HBL

A crisis of confidence

The latest index of industrial production (IIP) numbers, showing growth for September at a two-year-low of 1.8 per cent, confirms what is by now obvious: The slowdown is real. It is hard to think that the Government is aware of it, if judged purely in terms of policy response. There are perhaps reasons — at least from the Reserve Bank of India's (RBI) side — for the silence, unlike in 2008-09 when it was quick to respond. Back then, the growth fell all of a sudden. The first half of that fiscal actually saw an average year-on-year IIP increase of 8.1 per cent. Then followed the global economic crisis, which resulted in an industrial slowdown from October and seven consecutive months of negative growth between December 2008 and June 2009 — making it a proper textbook ‘recession'. This time round, it has been a comparatively gradual affair. The April-June quarter recorded a fairly decent average growth of 7 per cent. Since then, it has declined to 3.8 per cent in July, 3.6 per cent in August and 1.8 per cent in September. It is this gentle slide — combined with a wholesale inflation of 8 per cent-plus persisting over 21 successive months — that has confused policymakers, especially the RBI. Its monetary tightening actions have, in the end, dented growth without really helping to “anchor inflationary expectations”. The only consolation is that there is just a ‘slowdown' and no ‘recession' as yet. Tempering this minor satisfaction, though, are two realities. The first is that, unlike in 2008, there is not much fiscal headroom today to pursue Keynesian expansionary policies. The Centre's revenue collections are down, made worse by the limited options for borrowing: Last week's auction of a 13-year paper devolved on primary dealers despite a 9.15 per cent yield offer. Secondly, in 2008, the ruling United Progressive Alliance (UPA) enjoyed a fair amount of credibility among investors and the wider public. That's why the 2008-09 recession, which was primarily about liquidity and demand constraints, was amenable to traditional monetary and fiscal quick-fixes. The current crisis is bigger — one of ‘confidence', which has dried up because of a Government that no longer has the stomach for taking major policy decisions. That being the case, the best way out now is to work on the second part of rebuilding confidence. It requires taking immediate action on a host of fronts: Granting firm coal linkages to power plants best placed to achieve early completion; framing policies to enable bleeding telecom or airline firms to exit easily (including selling out to foreign players); decontrolling sugar and urea; and getting major financial bills on insurance (allowing 49 per cent foreign direct investment), pension (according statutory status to the regulator) and the direct tax code passed in the coming winter session of Parliament. These measures would go some way in restoring investor confidence.

HBL

Economists sombre on industrial growth

... He expected industrial growth numbers to start heading up from August 2012 only, when the Reserve Bank of India is likely to begin cutting rates. RBI's tight monetary stance is being blamed for stifling growth numbers, while not impacting inflation much.....

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'Fiscal deficit target is difficult to meet'

... "It is a cause for concern and we don't want to be in a situation where our sovereign debt and fiscal deficit get too high and later become unmanageable."....

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More bad news for banks as NPAs swell by 33%

Is the economy heading for a crash landing?

... There was a collective sigh of relief when the next day another global rater, Standard and Poor’s, lifted the risk profile of the Indian banking industry by one notch, from 6 to 5, saying banking regulations in India are in line with international standards, and the banking regulator, the Reserve Bank of India (RBI), has a moderately successful track record....

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Focus has to be on long-term structural solutions to tackle inflation: Chanda Kochhar

...“Beyond a point, instead of controlling consumption we will have to focus on adding supply, thereby rectifying the supply-demand imbalance in order to be able to control inflation in the long-term. So, clearly, we have to focus on long-term structural solution to tackle inflation,” .......

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MFIs may be allowed to access public money

...The ministry last week finalized the structure of the legislation, which will be moved to the cabinet in the next two weeks, after the law ministry takes a look at it, the official said.
“RBI will be the sole regulator for the sector, and MFIs will be allowed to collect thrifts from self-help groups (SHGs),” said the official, who was part of the committee that finalized the draft. “Also, it’s logical that the new legislation will overrule all state laws on the subject.”.....

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ICICI: savings deregulation to hit retail loans

Retail consumers are unlikely to benefit much from the peaking of interest rate cycle in the near term, said Chanda Kochhar, managing director and CEO, ICICI Bank, on Sunday, on the sidelines of the India Economic Summit, organised by the World Economic Forum..........

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'13 rate hikes count to tame inflation is misleading'

With fears of slowdown rising high and the cause being attributed to the conventional policies of the Reserve Bank of India (RBI), a deputy governor of the central bank said it was “a bit misleading count” to say that interest rates have been raised on 13 times and inflation still has not come down. “Keep in mind, we started from a very very low base. In these 13 times, we also returned to normalcy. The crisis response took the call rate to 3.25 per cent. I think, to argue that we have raised interest rates 13 times and nothing has happened is an injustice,” said Subir Gokarn, deputy governor, RBI at a meeting recently. After the global economic crises of 2008, the RBI took immediate measures to keep the situation under control. The repo rate, which was at nine per cent in early October 2008, was slashed by 100 basis points (bsp)on October 20, then by 50 bsp on November 3 and again by 100 bsp on December 8 the same year. The repo rates went down to 4.75 in April 2009 and were kept stable till March 2010 when the rise began. At the same time, the reverse repo rates were slashed in December 2008 by 100 bps and were gradually brought down to 3.25 per cent by April 2009, from 6 per cent in October 2008. The high inflation of 9.89 per cent in February was followed by the first rise in policy rates on March 19, 2010. Since then, the rates have been raised 13 times from 3.25 per cent to 7.50 per cent for the reverse repo rates, while for the repo rates the rise started from 4.75 per cent and reached 8.50 per cent in the last policy review in October 2011. Justifying the action of the banking regulator, Gokarn said, “Moving from 3.25 to 6 or 7 per cent or whatever the neutral rate might be, was itself a process that would have happened in any case. But after that, we of course, had to deal with inflation pressures. In the last one year, clearly the impact of interest rate rise is visible on the growth momentum.” India’s economy expanded by six-quarter low of 7.7 per cent during April-June and signals of the second quarter of this financial year are also not promising. Industrial growth remained sub-five per cent in the second quarter and fell to a two-year low of 1.9 per cent in September.

BS

Economy: It’s like the 1990s again, so there’s hope yet

The current state of the market and the economy is reminiscent of the 1990s, when India had high inflation and bad loans. Twelve years later, it’s ditto. And the last time, India came out stronger due to forced reforms. Can it rebound thusly from the current mess too? Banks then were facing writedowns on loans given to sectors such as steel, textiles, power and cement and it had become a huge issue. The government had to recapitalise banks and protect institutions such as ICICI and IDBI from going under. Cut to the present and the government has to recapitalise banks as loans given to power, construction, airline and other sectors are going bad. The State Bank of India, the country’s largest lender, had net NPAs of 2.04% in the just-past second quarter against 1.7% in the same period a year ago. Inflation at 9.7% is way beyond the Reserve Bank of India’s (RBI) comfort zone, though RBI has forecast it will come off to 7% by next March end. Inflation in the beginning of the 1990s was consistently over 10% and interest rates were high on the back of high inflation. Ten-year government bond yields were above 10% in the late 1990s, even though inflation had started to trend down in the second half of 1990s. Ten-year yields at present are trading at multi-year highs of close to 9%. On the global front, the 1990s saw the burst of the Asian tiger economies’ bubble, while it is the turn of the developed economies to face the burden of debt at present. Global markets are in turmoil over debt issues of Greece and Italy. Italian bond yields have touched unsustainable levels of 7% given its total debt at $2.7 trillion or 120% of GDP. Markets are worried about the unsustainability of debt levels in European countries leading to a selloff in equities and currencies. European equity indices are down by over 12% since August 2011, while the euro has fallen by over 5% against the dollar on the back of the sovereign debt issues. How will markets behave going forward? The problems facing the economy and markets will not go away in a hurry. It is a slow process as governments cut down deficit and central banks fight inflationary pressures. The bright spot is that markets are forcing the government to do the right things. Euro zone governments are in austerity drives, while the Indian government is fighting to keep its deficit down. The RBI is focused on keeping inflation under control while lenders are becoming risk averse and are focusing on strengthening balance sheets. The effect of fighting turmoil tells on growth. The euro zone is likely to face a recession in 2012, while India’s GDP growth is forecast to drop by 1% in 2011-12. Indian is also facing pressures on its currency due to its current account deficit, which could cross 3% o  GDP this year on a widening trade gap. The trade deficit in October at $19.6 billion was a record high leading to worries on the current account. Markets will be volatile in the short term, but as the dust settles and effects of right policies tell on the economy, markets will look to factor in a stronger period of growth. The process could take at least six months. Till then, it will be a tough time for investors.

DNA

Banks to accept IT dues payment

The Reserve Bank of India on Saturday said it had authorised State Bank of India branches and also those of other nationalised banks to accept payment of income tax dues in cash or by cheque. In a press release here, it said it had opened additional counters to help the public pay their dues as quickly and easily as possible. However, the rush at the counters was increasing and people are forced to wait in queues for long hours. The RBI hoped the new measure would lessen the hardship in remitting tax dues.

HBL

‘Euro crisis may impact investment climate'

NEW DELHI: The Eurozone debt crisis and persistently high crude oil prices will have a direct bearing on future investment climate in India and make it challenging to manage the growth-inflation balance, RBI Deputy Governor Subir Gokarn said on Friday. Addressing an interactive meeting with industry organized by Assocham, Gokarn cautioned that these two external factors have already started taking a toll on Indian exports. However, the bank interest rate cycle appears to have peaked and further hikes may not be warranted, he said.  Gokarn noted that the external turbulence is also impacting currency exchange rates in emerging markets like India. “The rupee has become a floating currency now within the boundaries of structural capital controls. The rupee is the fourth most depreciated currency in Asian region in the past two-and-a-half months,” he said. Gokarn also dismissed any RBI move to interfere with the exchange rate and its monetary policy stance in the coming months would be determined by movement in inflation. The RBI will keep a watch on the liquidity situation to decide on open market operations, he said, ruling out any fundamental stress as of now on the Indian banking system. The RBI has raised interest rates 13 times since early 2010 but failed to rein in inflation, which remains above 9 per cent. Instead, asset quality at banks is eroding and economic growth in Asia’s third largest economy is slowing. Turbulence in the country’s biggest export markets – the US and Europe – have prompted many industry leaders and government officials to predict an exports lowdown and a worsening trade deficit in the second half of the fiscal year ending March 2012.

Gokarn accepted that from growth perspective, the country is facing a slowdown. “India’s economy is expected to grow around 7.5 to 7.6 per cent in the current fiscal,” he said, adding that the impact of rate hikes is visible on economic growth. “There is no point in running away from the fact that there is a slowdown,” said Gokarn, but defended the RBI’s policy, saying that the central bank’s tight monetary policy has slowed the economy’s growth momentum, which may help stabilise inflation. “There are signals that headline inflation may start coming down by January next year and level below 7 per cent in the first half of 2012-13,” he said.  Attributing high food inflation to increasing affluence and changing consumption patterns, Gokarn warned that a persistent risk of endemic food inflation remains.  Gokarn also said efforts should be made to remove infrastructural bottlenecks, speed up new development projects and bring fiscal deficit within manageable limits to contain rising inflation and maintain growth momentum.

Expressbuzz

Freeze

..“There is such overwhelming bad news—the external situation is a disaster, inflation is not under control and economic growth is faltering at home. Worse, nobody knows where we are headed,” says Sudipto Mundle, member of the Reserve Bank of India’s technical advisory committee that advices the central bank ahead of its monetary actions.............

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There’s a lot the ECB can learn from the RBI

....There is not a single case of a state defaulting on its debt as the RBI is actively involved in ensuring that states service their debt. The RBI also closely interacts with the finance secretaries of each state to make sure states do not go overboard in their borrowing and budgets are more or less balanced...........

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Loan growth falls below RBI projection

Banks’ loan growth fell below 18 per cent on a year-on-year basis for the first time in this financial year, with demand for credit showing no signs of pick up even as the busy season started. According to the Reserve Bank of India (RBI) data, loan growth as on 28 October was 17.9 per cent. In October, loan book of banks shrank nearly Rs 60,000 crore. It fell from a high 21.4 per cent at the beginning of the financial year. So far, loan growth has been 5.5 per cent. Banks also reduced their assets in October, with outstanding deposit in the system declining nearly Rs 70,000 crore and as a result year-on- year deposit growth fell to 13.5 per cent. With growth of retail deposits remaining healthy, banks have been shedding high cost bulk deposits to reduce their cost of funds. Loan growth has been tepid in the current financial year so far as interest rates remain high. RBI increased the repo rate 375 basis points in the last 20 months to control inflation.

BS

Money Alerts

....Is your bank not providing you a passbook for your savings bank account or where there is statement facility, refusing to provide monthly statements? Then you may demand it under RBI's circular dated..........

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High interest rate hurting growth, says Reserve Bank of India

NEW DELHI: Admitting that high interest rate is hurting economy, the Reserve Bank today said the country's growth rate is likely to moderate to 7.5-7.6 per cent this fiscal. "Since we had 7.7 per cent in first quarter of 2011-12, we should expect that average for the remaining part of the year to be 7.5-7.6 per cent. This is partly because we have been raising interest rates," RBI Deputy Governor Subir Gokarn told reporters here.

ET

Making wealth from waste

...Mr. Jayaraman further explained that the initiative will be extended to more areas. He said that he had spoken to RBI Colony, Kamaraj Salai and few other colonies. “It is being conducted at the convenience of the people. All they have to do it dump in appropriate bags,” .....

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Is rupee depreciation the new normal?

......Any move by the RBI to support the rupee would put further pressure on the already strained liquidity. Along with all these factors mentioned above, a heightening risk on the current account deficit front, the best for the rupee seems to be over and we are in a new normal where unless we bring inflation under control and reduce the supply-side constraint, the rupee is expected to depreciate further against the dollar.

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