Seeking 'balancing act' with intervention: RBI

The Reserve Bank of India (RBI) will intervene to smooth sharp movements in the rupee and prevent a downward spiral in its value, but will balance this with the need to retain reserves in the event of prolonged turbulence, its deputy head said on Wednesday. Subir Gokarn, a Deputy Governor of the Reserve Bank of India, said the bank was not targeting a specific exchange rate with its interventions. The rupee slid to an all-time low of 52.73 against the US dollar on Tuesday but bounced back more than 1 percent on Wednesday after suspected RBI intervention. "The response is really...trying to remove sharp movements. That is the kind of technical and judgement criteria we used when we decided to intervene but that has not been with the objective of targeting a rate," Gokarn told reporters in Paris. "We need to balance out the short-term risk of an uncontrolled spiral (in the rupee) with the medium-term risk of ensuring that we have adequate reserves to deal with a potentially prolonged market turbulence," he said. "Our approach to the rupee is going to be determined by this balancing act." He said administrative and capital flow measures to ease overseas borrowing rules for corporates announced by the central bank on Wednesday were part of its broader approach.  "These are certainly measures which will support the pricing, and will take some of that spiral risk out of the picture but we will have to continuously monitor the situation and make judgements about where the risks are heading," he said. The rupee is under pressure as foreign investors are paring their exposure to Asia's third-largest economy amid global uncertainty and mounting worries over the domestic economy. The rupee has lost around 14% of its value in 2011 to be the worst performing currency in Asia.

Moneycontrol

RBI can avoid a further rapid decline in the rupee

... I think the currency is an interesting story here because the Reserve Bank has historically been very reluctant to intervene, there is an attraction in allowing the currency to move a bit low as well as just sort of part of easing, but all that said the Reserve Bank does have a huge amount of firepower, nice big foreign exchange reserves, so I think they can avoid a further rapid decline in the rupee.....

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Subbarao declines to confirm reports on intervention

Hyderabad, Nov. 23:  The Reserve Bank of India Governor, Dr D. Subbarao, on Wednesday declined to confirm reports that the apex bank had stepped in to halt the slide of the rupee against the dollar, even as the Indian currency unit somewhat bounced back after hitting a new low on Tuesday. Asked to confirm the RBI's reported intervention in the forex market today, he said: “I will not confirm”. According to reports, the halt in rupee's plunge was an upshot of some state-owned banks selling dollars during the day. The rupee had hit a record low of 52.73 against the dollar yesterday. On Tuesday, the RBI Governor had said that the apex bank can intervene in the forex market to check volatility. “We will intervene when it is inconsistent with our policy, but cannot give you a timeline for this,” he had told media persons on the sidelines of a function. 

HBL

RBI will intervene in rupee spiral, but will retain reserves

...Subir Gokarn, a Deputy Governor of the Reserve Bank of India, said the bank was not targeting a specific exchange rate with its interventions. The rupee slid to an all-time low of 52.73 against the dollar on Tuesday, but bounced back more than 1 percent on Wednesday after suspected RBI intervention.....

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What RBI can do on the rupee

...And, more importantly, at the macro level, a falling rupee has not allowed us to enjoy the benefit of declining global commodity prices, which means that imported inflation has not come down. Surely, one should expect some RBI action, which appears to be the only answer in this market.....

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Rupee impact: Can Subbarao stick to promise of not raising interest rates?

... While it is valid to argue that inflation in the economy is also triggered by supply-side issues, the point to note is that a cash-strapped government can do pretty much do nothing to alleviate pressure from that front. That puts the onus of managing supply and demand pressures in the economy back on the RBI governor.
For Subbarao, the promise of holding off on interest rates just got that much harder.....

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FINANCIAL INCLUSION : An Indian Perspective

... As the saga of financial exclusion continues, the desperate conditions of these people also remain unabated. This is because there is a clear link between the provision of financial services and the economic development. The providing of the financial services to all the sections of the society called as the financial inclusion has been linked to inclusive growth.....

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Puducherry first to achieve total financial inclusion

The Union Territory of Puducherry was today declared the first among the States and UT in India to achieve the milestone of cent per cent coverage of all villages under financial inclusion. Indian Bank is the SLBC (State-Level Bankers' Committee) Convenor bank for Puducherry.  According to an Indian Bank release, all the banks in Puducherry implementing financial inclusion, have as of now opened 2,32,413 savings bank accounts, of which 29,380 accounts have been covered under ICT-based financial inclusion. The Indian Bank Chairman and Managing Director, Mr T.M. Bhasin, said that the National Pilot Project for Financial Inclusion was launched by the SLBCcovering the entire UT of Puducherry in 2005 and this set the tone for the financial inclusion process in the country. In the second phase of the project, the member banks introduced smart card to facilitate doorstep banking in the unbanked areas.  He urged the rural masses to make use of the Financial Literacy and Credit Counselling Centre (FLCC) in Puducherry and Self- Employment Training Institute to enhance their skills and undertake self-employment ventures.  The bank has been allotted 1,511 villages with population over 2,000 in 19 States for providing banking services. “We have covered all the villages through various delivery models like branches, business correspondents, Internet kiosks, mobile van, etc,” he said.

HBL

Financial engineering?

...The debate over inflation very largely centres around whether the data should be seasonally adjusted in the manner all advanced countries do ... Perhaps India’s chief statistician TCA Anant has an answer?.......

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Pledged stock being sold to meet margin calls

...... A recent recommendation by a Reserve Bank of India panel headed by former deputy governor Usha Thorat that the risk weight attached to the exposure of NBFCs to the capital market be raised to 150% (from 100%) is also a disincentive to continue promoter funding in a big way,....

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Subbarao for revisiting subsidy regime in farm sector



The RBI Governor, Dr D. Subbarao, addressing the 25th annual conference of the Indian Society of Agricultural Marketing, in Hyderabad on Tuesday



Hyderabad, Nov 22:  The Reserve Bank of India Governor, Dr D. Subbarao, on Tuesday said there was a case for revisiting the subsidy regime in the agriculture sector, as it exerted pressure on food inflation. “Paradoxically, in India we subsidise both agricultural inputs and outputs — subsidies on inputs such as fertiliser, electricity and irrigation to incentivise production and subsidies on output for the PDS system entail a large fiscal burden,” he said in a lecture on ‘Challenges of Food Inflation' here. He pointed out that if the amount spent on subsidies could be diverted to augment capital formation in agriculture, higher productivity will raise the income of farmers while lowering prices for consumers. In the same vein, he said higher minimum support prices also led to higher inflation. Dr Subbarao felt that the direct role of monetary policy in combating food price pressures was limited. But in the face of sustained high food inflation, monetary action would still be warranted to anchor inflation expectations. “The outlook on food inflation in short to medium term will be determined by the speed and quality of a supply response by the Government,” he said. Shift in dietary habits toward more protein foods, pressure on food inflation stemming from inclusive growth and large increases in MSPs of food grains were the major factors driving food inflation, according to Dr Subbarao. “The possible trade off between inclusive growth and inflation has not received much attention,” he pointed out. The Mahatma Gandhi National Rural Employment Guarantee Scheme which guarantees at least one hundred days of wage employment to rural labour, has pushed up rural wages, exacerbating the wage-price inflation spiral. “Admittedly, increase in wages need not be inflationary provided it reflected higher productivity, but that is not currently the case,” he said. Dr Subbarao advocated raising agricultural productivity as a way to respond to the challenge of food inflation. During 2010-11, Punjab, with the highest yield in rice of 3.8 tonnes per hectare, was lower than the world average of 4.3 tonnes.  Prof Abhijit Sen, Member Planning Commission, said agricultural growth was expected to be between 3.2 and 3.5 per cent in the current Plan Period, lower than the targeted 4 per cent. He said a thrust should be given to more decentralised agriculture.

HBL

Reserve Bank of India to issue Rs 100 notes with Rupee symbol

MUMBAI: The Reserve Bank will shortly issue Rs 100 notes which will have the rupee symbol.  The Rs 100 notes will be of the Mahatma Gandhi-2005 Series bearing the signature of Reserve Bank of India (RBI) Governor D Subbarao and with the year of printing mentioned on the back of the banknote, the apex bank said in a statement.  The design of the notes to be issued is similar in all respects to the existing Rs 100 in Mahatma Gandhi Series-2005 issued earlier except for the rupee symbol.  However, all the Banknotes in the denomination of Rs 100 issued by the RBI in the past will continue to be legal tender.  Last week, the RBI had announced that it will soon introduce notes of Rs 1,000 and Rs 10 denomination featuring the rupee symbol.  The Indian rupee got an unique symbol -- a blend of the Devanagri 'Ra' and Roman 'R' -- last year joining currencies like the US dollar, euro, British pound and Japanese yen in having a distinct identity. The new symbol, designed by Bombay IIT post-graduate D Udaya Kumar, was approved in July 2010.

ET

RBI asks banks to report fraud cases to regional office of DBS

MUMBAI: Looking to check banking fraud, the RBI has directed banks to report fraud cases of between Rs 1 lakh and Rs 50 lakh to the regional office of the Department of Banking Supervision. "Fraud cases involving an amount more than Rs 1 lakh and up to Rs 50 lakh... (should be reported) to the R.O. (regional office) under whose jurisdiction the branch where the fraud has taken place is located," the RBI said in a circular. Such instances should also be reported to the regional office of the Department of Banking Supervision that administers to the head office of the bank where the fraud has taken place. However, in case the bank falls under the supervision of the Financial Conglomerate Monitoring Division (FCMD), the fraud report should be submitted to the FCMD, which comes under the Department of Banking Supervision, it said. The FCMD under the Department of Banking Supervision monitors 12 large banks, namely SBI, ICICI Bank, Canara Bank, Punjab National Bank, Bank of Baroda, Bank of India, Axis Bank, HDFC Bank, Kotak Mahindra Bank, Citi Bank, HSBC and Standard Chartered Bank. With regard to fraud cases involving amounts of Rs 50 lakh and above, banks need to only report to the regional office under whose jurisdiction the branch where the fraud has taken place is located. In the case of the banks under FCMD, the fraud case will be reported to Department of Banking Supervision. The central bank's latest notification comes a few months after it directed public sector lenders to promptly report cases of cheating involving Rs 1 crore and above to the CBI and of lesser amounts to the police.

ET

Recovery after plunge - Rupee closes at new low

... Forex circles saw the RBI’s hand in the recovery of the rupee through the selling of dollars. Besides, remarks by Reserve Bank Governor D. Subbarao and Deputy Governor Subir Gokarn that the central bank will not be comfortable with the sharp fall in the rupee aided in the recovery.....

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India’s Gokarn Says Rupee Intervention Not an ‘Easy Judgment’

Subir Gokarn, Deputy Governor at the Reserve Bank of India, comments on the rupee after it touched a record-low today. He spoke to reporters in Mumbai.  The local currency weakened 0.9 percent to 52.6038 per dollar as of 11:12 a.m. in Mumbai and touched a low of 52.7288, according to data compiled by Bloomberg. “It’s not an easy judgment. It’s not something that we can say we are going to do this or we are going to do that. It’s all being considered. It’s going to be an ongoing process. That’s where we stand.  “The sharpness and the speed of the movement are obviously creating some disruption. We obviously at this point, don’t know where it’s going to go. Any action will have to be viewed in terms of short-term consequences and medium-term consequences.  “As we have been saying, we don’t have a target or a rate in mind, the rupee is moving according to market dynamics. It’s disruptive, there is no question. There’s an impact on companies and it’s a problem. But, any action we take now, if any, has to take into account the fact that these actions might have consequences further down the road. So, we’ve got to balance out actions now with the risks of potential increases in vulnerability later.  “The immediate impact as we pointed out is possibly on the inflation rate and other risks. Actions have to be weighed in terms of their medium-term risks. We should not be looking at the short-term only when we make these judgments. Any action that has been suggested, that has been debated, also has potential adverse consequences down the road. So, we’ve got to balance out these two.” 

http://www.bloomberg.com/news/2011-11-22/india-s-gokarn-says-rupee-intervention-not-an-easy-judgment-.html#

RBI watching situation closely: Subbarao

Hyderabad, Nov. 22:  Without giving any timeline for the Reserve Bank of India to intervene in the foreign exchange market, the RBI Governor, Dr D Subbarao, said the apex bank was watching the situation closely. “The RBI can intervene and we will intervene when it is in consistent with our policy,” he told media persons on the sidelines of a conference here on Tuesday. The rupee fell to a new low during the day, hitting 52.76 against the dollar. “Our policy remains unchanged, which is to manage the volatility in the exchange rate. The foreign exchange rate is being driven by global dynamics and what direction it moves will depend on the credible resolution of the external situation,” Dr Subbarao said. 

HBL

RBI hints at more monetary action to curb inflation

HYDERABAD: Reserve Bank of India (RBI) Governor D Subbarao did not rule out further monetary action to curb inflation.  He said monetary steps may be warranted in the face of sustained rise in food prices.  "The direct role of monetary policy in combating food price pressures is limited, but in the face of sustained high food inflation, monetary action may still be warranted to anchor inflation expectations," he said while addressing the 25th annual conference of the Indian Society of Agricultural Marketing.  The central bank has raised rates 13 times since March 2010, but it recently hinted at pause in rate hikes in the December policy if inflation falls in line with the RBI's projected trajectory.  He felt the solution to high food prices lies in a supply-side response from the government.  "A lasting solution to food price pressures lies in a supply response that raises agricultural production and productivity, improves supply chain management and sets the right incentive framework for both producers and consumers."  "The outlook on food inflation in the short to medium term will be determined by the speed and quality of such a supply response by the government," he added.  He identified large increases in the minimum support prices of foodgrain by the government to farmers as one of the reasons driving food inflation. He said shift in dietary habits towards protein-rich foods, pressure stemming from inclusive growth policies, shocks from global food inflation, and financialisation of commodities were the other factors driving high food prices. "Inflation is a regressive tax and hurts the poor the most. The impact can be particularly severe in a country like India with a population of 1.2 billion, a per capita income of less than $1,500 and a large share of food in the total consumption basket," he said.  Subbarao said that the government's food for work programme and proposed food subsidy bill had the potential to further raise fiscal deficit and inflationary pressures.

ET

The lack of confidence

... RBI can, in the short run, certainly act to stem the panic. But for the direction of the currency to change, what is needed is the return of confidence, both in the global markets and in the prospects for the Indian economy......

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Wake up and smell the rupee

The government's helplessness over a falling rupee is very real. Under textbook conditions, monetary policy faces an impossible trinity of keeping both exchange and interest rates free in an environment of unimpeded capital flows. The rupee is in a managed float; India's capital account is not free. Despite this the rupee has plummeted 15% from the beginning of the year as the trade gap widened and international investors fled to the safety of dollar debt. The copybook response to capital flight is monetary tightening, but that option is already nearing exhaustion after a bruising battle with inflation at home. If the Reserve Bank of India (RBI) now starts selling dollars it will have to suck more rupees out of the system, pushing up interest rates further. The Indian economy has lost quite a bit of steam due to the deliberate ministrations of its policymakers. It could begin to sputter if the government tries to prop up the rupee. The other policy response does not hold out great hope either. The financial crisis of 2008 has led to a reassessment of capital controls worldwide. Some degree of control is now being advocated by even the likes of the International Monetary Fund, whose sole mantra till recently was free markets. India, however, already has far tighter capital controls than what is being contemplated in the global arena. A further tightening would be an unfortunate throwback. Our policy towards foreign capital has been easing ever so gradually since India opened up to the world in 1991. This despite the fact that we save less than we invest and import more than we export. These two gaps, adding up to nearly 6% of the gross domestic product, have per force to be bridged by money from abroad. Foreign capital has been persistently financing India's fiscal and trade deficits and our policymakers must heed it when it seeks greater access to our economy. So if interest rates cannot be raised and capital flows cannot be curbed, the Indian economy must learn to live with the prospects of a falling rupee. Unless the government gets serious about controlling its bloated expenditure — particularly subsidised energy, most of which we import — the economy remains vulnerable to hot money flows. As it is, the 2011 capital flight has caught our policymakers on the wrong foot. India's tight monetary and loose fiscal stances are working at cross-purposes. This inconsistency has been allowed to linger since the RBI started on a series of 13 interest rate hikes in March 2010. With the rupee headed further downhill, the government should wake up and smell the coffee.

HT

It's time RBI bit the bullet

... If dealing with high-interest rates and raging costs was not bad enough, corporate India now has a free-falling rupee to battle.....

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Not enough firepower

... The sharp decline in the rupee this month has sent shock waves through the financial markets. The fall has been accentuated by statements from senior policymakers that the Reserve Bank of India (RBI) does not have the firepower to aggressively defend the Indian currency....

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National Food Security Bill will add to inflationary pressure

Mumbai : The proposed National Food Security Bill, when implemented, would add to inflationary pressures, Reserve Bank Governor D Subbarao said here today. "The National Food Security Bill, 2011, is another potential source of pressure on inflation and its inflationary impact will depend on the extent to which it will raise demand for foodgrains relative to the normal increase in supply," he said at the inaugural function of 25th annual conference of Indian Society of Agricultural Marketing. The draft National Food Security Bill seeks to provide a legal entitlement to subsidised foodgrains to 75 per cent of the country's rural population and 50 per cent of urban India.  He said the estimates suggest that 68 per cent of the country's population will get legal entitlement after the bill is enacted. This would create more demand for foodgrains and at the same time production may not increase correspondingly leading to demand-driven inflation. "Furthermore, higher food subsidy burden on the Budget will raise the fiscal deficit, exacerbating macro-level inflationary pressures," the RBI Governor added. Terming the UPA government's flagship programme -- National Rural Employment Guarantee scheme -- as an inflation pusher, he said increase in wages need not be inflationary, provided it reflected higher productivity. "The NREGS has evidently set the floor for the rural wage level, making wage push inflation more visible and prominent. Admittedly, increase in wages need not be inflationary, provided it reflects higher productivity," he said.

NDTV Profit

Rupee: RBI to take required action; may not help much, says Pranab

Even as the rupee fell to an all-time low of 52.73 vis-à-vis U.S. dollar on Tuesday, the government said RBI will take the required action while conceding the central bank’s intervention may not be of much help. “RBI intervention (in the forex market) will not help,” Finance Minister Pranab Mukherjee told reporters while attributing the decline to pull-out of funds by the Foreign Institutional Investors (FIIs) and uncertain global economic situation. He further said the Reserve Bank of India (RBI) is monitoring the situation “closely and will take the required action in light of the international developments as situation unfolds”.  RBI, which described the fall as “disruptive”, said it is yet to decide on intervening in the foreign exchange market. Mr. Mukherjee said, “The increased uncertainty in the euro-zone on account of sovereign debt crisis has led to shifting of capital from Europe to USA which has hardened the US dollar against most currencies.” The rupee is the fourth-most depreciated currency in the world and the most depreciated in the Asian continent. Commenting on fall in rupee, Reserve Bank Governor D. Subbarao said in Hyderabad: “Our policy is that if the macro-economic situation is impacted due to the exchange rate fluctuation or undue volatility, we will have to intervene. We are yet to decide whether to intervene or not at the moment.” RBI, he further said, “will intervene when it is consistent with the policy. But in real terms I cannot tell (when the Reserve Bank of India will intervene).” The intervention in the forex market, he added, would be in accordance with the RBI’s policy. Meanwhile, the rupee after hitting a historic low of 52.73 to a dollar, recovered some lost ground to settle at 52.29/30.

HBL

The rupee saga is not yet over

....the RBI might just be prevented from an explicitly pro-growth stance if currency depreciation triggers a fresh spurt of inflation; this wouldn’t go down too well with equity markets from where the currency derives its support.....

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Rupee fall disruptive, medium-term goals to guide action: RBI

.....”Volatility is another thing. This is the sharpness and speed of the movement that is obviously creating some disruptions. We don’t know where it is going to go, but it is something we need to watch out for,” Gokarn said......

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Tight liquidity limits RBI role in forex mkt

NEW DELHI: Market talk suggests that the Reserve Bank of India stepped into the foreign currency market on Monday to check a steep fall of the Indian currency, but it could not prevent it from closing at an all-time low. Executives manning some of the largest treasury operations in India said RBI has been intervening in the currency markets for the last few weeks, something it had refrained from doing for nearly a year when the rupee hovered in the 44-45 range to the greenback. Just like during the height of the global financial crisis in September-October 2008, RBI governor D Subbarao has limited ability to dictate how the rupee moves this time too. Whenever RBI asks banks to step in on its behalf, the public sector players supply more dollars into the market, hoping that they would stem a decline . During this exercise, they also buy rupees from the market and end up reducing the supply of the Indian currency. So, with less cash available in the system, there is every possibility that interest rates, even if it is in the shortrun , rise. Given that liquidity is tight with banks borrowing over Rs 1.27 lakh crore through RBI's overnight lending window, the central bank would not like to drain more cash from the system. While RBI remained silent on Monday, the government acknowledged that the authorities had limited ability to intervene and stem the rupee's slide. "The rupee cannot slide beyond a point. Ability to intervene (in the forex market) is also limited," economic affairs secretary R Gopalan told reporters. The Indian currency was the worst performer on Monday , shedding some 2.5% against the dollar, with only the Chilean peso putting up a worse show. During the last one month, the rupee has lost close to 8% against the greenback.

TOI

RBI to manage volatility in exchange rate

Hyderabad: The Reserve Bank of India will manage volatility in the exchange rate but it hopes that the rupee would recover once the European crisis is resolved, the central bank's Governor D Subbarao said on Tuesday. "Our policy remains the same which is to manage volatility in exchange rate and to ensure that exchange rate volatility does not impair on macro-economic stability," he told reporters on the sidelines of a conference. "The exchange rate movement that we have seen over the last couple of weeks, particularly in the last 3-4 days is being driven by global dynamics, and clearly to what extent it moves and in which direction will depend on credible resolution of external situation, particularly the sovereign debt problem in Europe," he said. "We expect that the reverse adjustment will take place when the European situation resolves itself," he said on a day when the rupee fell to an all-time low. The rupee depreciated to Rs 52.73 per US dollar on Tuesday. Finance minister Pranab Mukherjee said on Tuesday in New Delhi that RBI's intervention in the forex market will not arrest the slide as foreign institutional investors' pullout and global reasons were behind the depreciation. 

http://www.newsbullet.in/

All eyez on You: RBI hits out at FX related bank transfers

...“… Banks should exercise due caution and be extra vigilant in respect of the transactions that require residents to make margin payments for online forex trading transactions through credit cards/deposits in various accounts maintained with banks in India,” the Reserve Bank said in a notification.....

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FM to loosen purse strings to give growth a leg up

....“What we have is a world economy in which some parts are caught in a “stag” mode and some in “flation” mode, which may together be referred to as “salad bowl stagflation”, ......

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RBI Report on Air India Turnaround Plan Likely Next Week

The Reserve Bank of India is expected to submit next week a report containing its recommendations on a fresh turnaround plan for loss-making national carrier Air India Ltd., a senior official in the civil aviation ministry said Tuesday.  "The RBI is expected to submit its report next week after which the GoM [group of ministers] will take a final call to send it to the cabinet or discuss it further," the official told reporters. The panel of ministers, headed by Finance Minister Pranab Mukherjee, was set up to look into Air India's turnaround and had sought the views of the central bank on a fresh business plan. The plan includes steps for operational as well as financial restructuring of the carrier. 

WSJ

First Islamic interbank benchmark floated

..The establishment of the IIBR marks an important milestone in the maturation of Islamic money markets by providing an international reference rate for interbank transactions,....

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RBI cancels certificate of registration of M/s Cannan Interational

The Reserve Bank of India (RBI) has cancelled the certificate of registration issued to M/s. Canaan International Creditcap Limited, having its registered office at Nellore in Andhra Pradesh for carrying on the business of a non-banking financial institution.

http://www.newkerala.com/news/2011/worldnews-109313.html 

Kids learn economics at RBI stall

Delhi: Little Ragini is too young to learn about currencies of different countries and meaning of words like savings and current account. But what aroused her interest in banking and commerce are the comic books describing all such economic terms in the language of kids. The stall of the Reserve Bank of India (RBI) at the ongoing India International Trade Fair (IITF) is disseminating awareness about finance and economics among the visitors in the language they understand. "We have come up with these comics book series and cartoon books to make kids learn about the banking systems and to prepare their minds for a vibrant future economy, which will depend on their shoulders," said a senior RBI official at the stall. The RBI's objective for participating in the fair is to establish direct contact with the common man and learn from their queries and comments. "This stall is very informative for all of us, especially the middle class, as we get to know a lot about our financial system," said Rajesh Sachdeva, Ragini's father. A quiz on financial literacy is also being organised, besides the screening of films on security features of currency notes and banking schemes.

HT

Banks Oppose Move to Prune Top Deck

PSU banks fear loss of supervisory control & grip on business

Public sector banks have opposed the government’s proposal to trim the size of their top management which they fear would force them to sacrifice the quality of supervisory control amid concerns over rising bad loans and lose their grip on ground-level business. Bank chiefs have told government officials that the size of business should not merely be the sole criterion for deciding the number of general managers and their deputies as the banking industry is passing through a challenging phase before the imminent Basel III regime from January 2013. “We have urged the ministry to keep in mind that banks do a diverse business today and there are constant changes in regulatory environment, especially after the global financial turmoil in 2008,” a bank chairman told ET requesting anonymity. Earlier in the month, the finance ministry has proposed to reduce the number of senior executives in public sector banks apparently to help them tide over the crisis at their top deck created due to mass retirement. After factoring in inflation, it said government banks should not have more than 10 general managers for business up to . 1.5 lakh crore and proposed a 1:3:9 ratio of GM, DGM and AGMs. At present, banks can have a maximum of 20 GMs for . 1 lakh-crore business. The HR regulation was last revised in 2007. “A change in the guidelines is overdue. The ministry wanted our feedback on the proposals they made. So, we have written to them,” another senior bank executive said. Another official at a small-sized government bank said that they have urged the government to implement the proposal in two or three phases. According to the proposal, Punjab National Bank can have a maximum of 37 GMs till March 2013, while Bank of Baroda, Bank of India and Canara Bank can have 35, 34 and 33, respectively. Likewise, the ministry has pegged it at 20 for Central Bank of India and 20-23 for Union Bank of India. It has put a ceiling of 10 GMs for smaller players like Andhra Bank, Bank of Maharashtra, Dena Bank, Punjab & Sind Bank, United Bank of India and Vijaya Bank.

ET

Pain in near term, relief by year-end?

The rupee, which has lost 18 per cent against the dollar in the last three months, could be headed for fresh lows, at least in the near term (couple of weeks), said dealers and economists. On Monday, the rupee crossed the 52-mark against the dollar, as nervous foreign exchange traders squared-off their positions, on fading hopes that the Reserve Bank of India (RBI) would step in to control the fall. The rupee fell by 82 paise to close at 52.15, an all-time closing low. Though R Gopalan, secretary of economic affairs, on Monday said the central bank’s ability to intervene in the foreign exchange market was “limited”, most experts are hoping RBI would step in to arrest the fall sooner rather than later. Business Standard conducted a poll of 10 dealers and economists on their rupee guidance for the near term and for the year-end. After Monday's fall, most of them were reworking their forecasts for the rupee-dollar exchange rate. “We are in the process of revising the forecast and, most likely, it would be revised downwards,” said an economist from a foreign bank, on the condition of anonymity. “It is difficult to give a strong forecast at this point. The rupee may depreciate to 52.50-53 levels in the near term, depending on the developments in the euro zone,” said Priyanka Kishore, foreign exchange strategist, Standard Chartered Bank. What is encouraging is that forecasts for both December-end and March-end are positive. For instance, according to Standard Chartered forecasts, the rupee would stand at 50/dollar by December and 48.8/dollar by March-end. The predictions of Crisil were the most bullish — Rs 50/dollar by December-end and 46/dollar by March-end. However, many are hinging their predictions on RBI’s intervention. Vivek Rajpal, India rates strategist, Nomura, said the rupee would recover to some extent by the end of March, assuming RBI would be active in managing the exchange rate. “Rupee is an equity currency, and a change in RBI's stance from an anti-inflationary one to a pro-growth one would also be helpful in holding the rupee-dollar exchange rate at current levels,” he said. Traders had expected RBI to arrest the rupee's fall. But recent comments from a central bank’s senior official that the bank would not change its stance has hurt market sentiments. RBI Deputy Governor Subir Gokarn had said the apex bank would not set an exchange rate, and that the objective would only be to smoothen excess volatility. Data shows RBI had sold $845 million in September, when the currency had witnessed sharp volatility and depreciated 6.25 per cent. 

BS

RBI allows banks, NBFCs to set up infra debt funds

The Reserve Bank of India (RBI) on Monday issued guidelines to allow banks and non-banking financial companies (NBFCs) to sponsor infrastructure debt funds (IDFs), to support long-term finance in infrastructure. The same are based on the parameters RBI had issued in September. IDFs may be set up either as mutual funds or NBFCs.  According to the guidelines, NBFCs trying to set up IDFs should have been operational for at least five years, should have minimum net owned funds of Rs 300 crore and a capital adequacy ratio of 15 per cent. Besides, its net non-performing assets should be less than three per cent of net advances. It should also have earned profits for the last three years, RBI said in a release. Investors would be primarily domestic and off-shore institutional investors, especially insurance and pension funds with long-term resources. IDFs set up as MFs would be regulated by the Securities and Exchange Board of India, while those set up as NBFCs would be regulated by RBI. “Sponsor infrastructure financing companies would be allowed to contribute up to 49 per cent to the equity of the IDF-NBFC, with minimum equity holding of 30 per cent of the equity of the IDF-NBFC,” RBI said. Banks acting as sponsors would be subject to their prudential limits on investments in financial services companies and limits on capital market exposure, RBI said. "Investment in a bank’s equity in subsidiary companies, financial services firms, financial institutions, stock and other exchanges, put together, should not exceed 20 per cent of the bank’s paid-up share capital and reserves and this limit would also cover the bank’s investments in IDFs as sponsors. Banks’ exposures to IDFs (MFs and NBFCs) by way of contribution to paid-up capital as sponsors would form part of their capital market exposure and should be within the regulatory limits specified,” it said. Finance Minister Pranab Mukherjee, in the Budget speech for 2011-12, had announced the setting up of IDFs to source long-term debt, both from foreign, as well as domestic investors. Taxation rules were also eased to make IDFs more attractive to off-shore funds.

BS

RBI’s action of pushing up interest rates on savings accounts is fraught with peril

The Reserve Bank of India (RBI) has made another dangerous move by freeing up the interest rates on savings accounts deposits. In an earlier argument against this, I had said that RBI should have, in fact, made this ‘zero’. Now, RBI has ensured a cut-throat race amongst banks, to fight for savings accounts deposits. This is great for the individual who keeps his money in a savings bank account. Unlike in the past, we must now ‘shop’ with banks for higher and higher rates. Yes, RBI has said that for identical amounts, banks cannot differentiate in the interest rate offered. That does not mean that we cannot get freebies from a bank. We should club our accounts together and use it as a bargaining tool. In case banks refuse higher interest rates, we can always bargain for some other freebie. Now, we will also have to be more combative and watchful with banks. They will try to make up for the higher interest rate by imposing a charge for virtually everything—from the number of cheque leaves to imposing a charge on a visit to the branch for anything. Perhaps, they will also start delaying clearance of credits to enjoy a ‘free float’ on our money. While it looks good for the depositor, what about the banks? Not very good, I think. They will perhaps put up a brave front and say that they will hike their lending rates also. But wait. Why would any blue-chip corporate borrow at usurious rates? Maybe they can borrow elsewhere. This would force banks to extend credit at high rates to riskier customers. Generally, when interest rates are high (both ways) the net spread a bank makes is higher than when interest rates are in single digits. So, initially, it would seem as though banks would make higher profits. However, my call is that banks will be in a rat race to mop up deposits and end up paying high costs. Lending will deteriorate in quality as banks will seek to deploy the high-cost funds and earn a spread on it. What is the implication for investors? I would keep away from bank stocks for some more time, until RBI gets its act together on inflation. After all, after 13 continuous upward nudges of interest, inflation still remains high. A large portion of savings bank and current account deposits (CASA, as it is popularly known) gives some banks an edge. For instance, State Bank of India (SBI) and HDFC Bank have CASA deposits that constitute nearly 48% of their total deposits. Now, the interest costs for these two banks will rise much higher than those for banks that have a lower proportion of CASA. What will be interesting is to see what happens if, and when, liquidity in the domestic market eases. Today, tight liquidity has pushed up short-term borrowing and lending rates so high, that there is not much gap between interest rates on a 30-day loan and a 10-year loan! Liquid funds give returns almost in line with yields on 10-year government securities! Once liquidity eases, will the returns on liquid funds crash? Logically, they should. Then, we will have the funny situation of savings accounts returns beating liquid fund returns! And, with banks being forced to pay interest on ‘daily’ balances, savings accounts should replace liquid funds, for the individual investor. We need not go to liquid funds at all. It saves us the bother of filling forms for purchase and redemptions. Another implication is that interest rates are going to play an important role in all financial advice. We are perhaps entering a phase where fixed returns are going to be more tempting than equity returns, as companies struggle to grow in the face of weak capital markets, flagging demand and high resource costs, combined with runaway wage costs. RBI has set in motion a run-up in interest rates that will benefit the saver in the short term. I only hope that the lending rates do not go so high that they kill borrowing, and borrowers.

Moneylife

RBI to issue floating-rate bonds after two years

Reserve Bank of India is poised to issue floating-rate bonds (FRBs) — for the first time in two years. Come this Friday, and the country’s central bank will reissue Rs 3,000 crore worth of FRBs that are set to mature in 2020. Many believe that the yields are likely to ease, as the demand for FRBs is high in the current rising-rate environment. “These instruments will help investors manage their interest-rate risks more effectively,” notes N S Venkatesh, head of treasury at IDBI Bank. “The FRB issuance is a welcome move, as yields are currently at high levels.” The rate of interest on FRBs is payable half-yearly. RBI will announce it before the commencement of the relative semi-annual coupon period. Yields are also expected to soften, as RBI will purchase bonds via open-market operation (OMO) on Thursday. The details of the securities to be purchased are yet to be announced. Says a bond dealer with a public sector bank: “The success of OMOs will depend on the security that RBI chooses to buy.” Today, yields on the ten-year benchmark bond touched an intra-day high of 8.86 per cent, before closing at previous day’s level of 8.83 per cent. Besides FRBs, RBI is also auctioning Rs 4,000 crore of government security that will mature in 2040. The coupon rate is 8.30 per cent. Then there is another Rs 6,000 crore of government security -- maturing in 2024 with a coupon rate of 9.15 per cent. A treasury official of a public sector bank sees the possibility of devolvement in the auction for the paper maturing in 2040. Reason: “There could be bidding for higher yields that RBI may not accept.” For the second half of current financial year, the government will borrow Rs 2.2 lakh-crore against the earlier-planned Rs 1.67 lakh-crore. A higher-than-planned borrowing has led to yields trading at three-year high levels. 

BS

Govt may ease foreign entry in MF schemes

... The Reserve Bank of India (RBI), Sebi and the finance ministry are currently reviewing the norms to facilitate entry of so-called qualified foreign investors, or QFIs.....

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Montek says fiscal deficit will exceed target of 4.6%

I will say, if there is some slippage ( in meeting fiscal deficit target), we should not mind.”................

Details

Re to touch 54-56/$; chance of self-correction low: Experts

... “The chances of a self-correction in the currency are low, and would depend on foreign direct investment and capital inflows,”....

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Tight liquidity limits RBI role in forex market

NEW DELHI: Market talk suggests that the Reserve Bank of India stepped into the foreign currency market on Monday to check a steep fall of the Indian currency, but it could not prevent it from closing at an all-time low. Executives manning some of the largest treasury operations in India said RBI has been intervening in the currency markets for the last few weeks, something it had refrained from doing for nearly a year when the rupee hovered in the 44-45 range to the greenback. Just like during the height of the global financial crisis in September-October 2008, RBI governor D Subbarao has limited ability to dictate how the rupee moves this time too. Whenever RBI asks banks to step in on its behalf, the public sector players supply more dollars into the market, hoping that they would stem a decline. During this exercise, they also buy rupees from the market and end up reducing the supply of the Indian currency. So, with less cash available in the system, there is every possibility that interest rates, even if it is in the short-run, rise. Given that liquidity is tight with banks borrowing over Rs 1.27 lakh crore through RBI's overnight lending window, the central bank would not like to drain more cash from the system. While RBI remained silent on Monday, the government acknowledged that the authorities had limited ability to intervene and stem the rupee's slide. "The rupee cannot slide beyond a point. Ability to intervene (in the forex market) is also limited," economic affairs secretary R Gopalan told reporters.

TOI

Re plunges, but RBI is helpless

The rupee on Monday plunged to 52 against the dollar, and Reserve Bank of India (RBI) virtually expressed its inability to arrest the slide. The central bank is in a bind as selling dollars in the market to stabilise the value of the rupee will tighten the liquidity situation and may also force the RBI to resort to further open market operations. The fall of the rupee could not have come at a worse time, with the inflation nudging 10 per cent. Analysts say the sharp depreciation will make oil imports costlier. The fall was due to rising demand for the US currency, especially from oil importers and lower participation from foreign institutional investors in the equity market. The parity with the dollar is an all-time low for the rupee after March 2009, in the wake of the 2008 financial crisis. The erosion of the rupee may fuel inflation further making food and fuels costlier. The rupee has fallen nearly 15 per cent since July this year. Compared to other Asian currencies, the fall of the rupee has been more pronounced since late July, partly due to the country’s widening trade deficit. Unlike most Asian countries, India has long run a trade deficit that reached a four-year peak of $19.6 billion in October. The currency of every other emerging economy is falling, except the Chinese Renminbi. The currencies of Russia, Brazil and Indonesia too have eroded, but not to the extent of rupee.

DH 

Rupee in uncharted territory

...What is intriguing is the Reserve Bank of India's rather passive stance in the face of such large declines in the home currency. It is possible that, in its assessment, the size of forex reserves is not large enough to defend the rupee in what promises to be a period of prolonged uncertainty and financial market volatility. Or else it wants to ...

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State-run banks set up more ATMs

State-run lenders, which account for about 75% of the Rs.64 trillion Indian banking industry, are seeking to protect their share by following their technology-savvy private sector rivals and offering options beyond branch banking to customers. The top two state-run banks —State Bank of India (SBI) and Punjab National Bank (PNB)— have increased the number of ATMs aggressively in recent years, adding more of the devices than branches. IDBI Bank Ltd too has done so, although for a different reason—it has a relatively small branch network. Going by the latest figures available, the State Bank group had 24,651 ATMs as against total branches of 17,913 in March and PNB had 5,050 ATMs against 4,855 branches. IDBI Bank had 1,370 ATMs and 806 branches. Larger, new-generation private sector banks such as ICICI Bank Ltd and HDFC Bank Ltd already have an extensive ATM network. “Public sector banks have realized that alternative channels are more efficient (than the branch model),” said P. Pradeep Kumar, deputy managing director, information technology (IT), at SBI. “Lack of availability of core banking (at ATMs) was a hurdle earlier but this has been resolved now.” Out of the total ATMs that the State Bank group has, 42.8% or 10,547 are at off-site locations or away from the branch, the data showed. Traditionally, private and foreign lenders have been using alternative banking channels such as ATMs to increase reach and bring down operational costs. State-run banks have begun following this trend only recently. Banks do not need Reserve Bank of India approval to set up off-site ATMs. Customers are allowed to use ATMs of any banks up to five times a month for free. This has acted a catalyst for rapid ATM expansion, bankers said. In March, Axis Bank Ltd had 6,270 ATMs, nearly five times the number of its branches while ICICI Bank had 6,104 ATMs compared with its branch network of 2,523. Overall, commercial banks in India have 74,505 ATMs and 74,130 branches. Of the total ATMs, nearly 45% operated outside bank branches. Banks are keen to rely on alternative banking channels mainly due to the cost effectiveness of running such units. According to senior bankers, banks typically spend around Rs.15,000 to Rs.20,000 per month to maintain an ATM. A normal branch with three officers could cost anywhere between Rs.60,000 and Rs.1 lakh or even more, depending on the location. “An ATM costs at least Rs.4 lakh but you have to shell out much more if you want to set up a branch,” a senior SBI official said. He did not want to be named as he is not authorized to talk to the media. Banks generally outsource the creation and maintenance of ATM networks. Customer demand has led to the widening of the ATM network, said K.R. Kamath, chairman and managing director of PNB. Most state-run banks want to reduce their dependence on high-cost branch models and increase their reach. “Many public sector banks such as Bank of Baroda are working on improving their channel banking part as this provides speedier transactions and reach at lower cost,” said Abhishek Kothari, analyst with Mumbai-based brokerage, Way2Wealth Brokers Pvt. Ltd. “Going ahead, this channel is going to be critical for banks as more and more customers even from the rural areas are increasingly finding it convenient to access basic banking services.”

Mint

Lessons from the commercial micro-finance model in India

.... The Reserve Bank of India is one of India’s greatest institutions and it has done a fantastic job protecting the Indian financial sector through the recent global financial crisis. Let us be clear on that! However, micro-finance is not regular finance and it has many peculiarities which require appropriate strategies of regulation/supervision including local presence. The sooner the RBI recognizes these facts the better......

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Credit worthy

Next time your bank informs you that the limit on your credit card has been slashed, or that your card will be cancelled because of repeated defaults, don’t be too surprised. As a part of a cleaning-up exercise, banks have become cautious about issuing new credit cards and are undertaking more rigorous credit checks on the existing card holders............

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In public interest

''The public has a right to know the details.''

The Central Information Commission’s directive to the Reserve Bank of India to disclose the names and other details of the top 100 businessmen and industrialists who have defaulted on repayment of loans from banks gives yet another boost to the right to information. Though the right is now considered as part of the most important citizenship entitlements, it is not without a fight that it finds acceptance in new areas. The CIC has, through a number of orders in the past, expanded the scope of the right and taken it to areas which were considered beyond the limits for citizens. In the process, the definition of public interest has also undergone a change and the territory of confidentiality has steadily shrunk. The RBI had refused to furnish information relating to default in loans taken from public sector banks and the names of defaulters on the argument that such information was fiduciary in nature and disclosure would amount to a breach of trust between the banks and customers. But the CIC’s view that public interest overrides fiduciary obligations strengthens the spirit of the RTI. It is when tested against actual cases that concepts like public interest or a fiduciary relationship get clearly defined and acquire new meaning. It is also possible to look at the issue from a different angle. Though the relationship is fiduciary in nature, is a client entitled to protection under it after he has defaulted on loan obligation? If tax defaulters’ names can be published loan defaulters have no reason to claim special privilege and banks have no reason to hold them back. The need to maintain confidentiality is based more on commercial than moral considerations. Both considerations should subserve greater public interest, as the CIC has noted. It is known that large amounts of public funds are caught in delays and loan defaults and big business has a major share in them. The public has a legitimate right to know the details. This can even act as a deterrent against default. The CIC’s ruling has come in the wake of another ruling which asked the RBI to make public the audit reports of co-operative banks. The RBI had rejected this demand also. It is surprising that the apex bank considers the financial position of even public entities confidential. The CIC has done well to expand the scope of the RTI in both cases, but efforts are on to undermine it.

DH

RBI to make corporate loan pricing transparent

Reserve Bank of India (RBI) is working towards bringing in transparency in pricing of corporate loans that banks extend to companies. The central bank is of the view that there should be a methodology for changing the premiums that banks use effectively for hiking lending rates. This follows banks' move to increase tenor premiums and risk premiums to get higher rates for their lending without changing the base rate. A senior RBI official told Financial Chronicle that this method of arbitrarily changing the lending rates when the rating remains the same and other variables like the financial position and other fundamentals of the company remain the same is unfair to the corporate client. "In our inspection of banks, we have discovered that two entities who come with the same rating get two different rates. There should be a uniform rationale in pricing these loans.” Senior bankers who did not want to be quoted said the loan is priced depending on risk perception of the client. "They may have the same rating, but in our perception, we could take a view that their revenues could be impacted because projects are going on stream, etc. Company pays the rating agency that rates it and so may have a vested interest. For a bank, it is a business decision,” said a senior banker. Subir Gokarn Deputy Governor of RBI, said on the sidelines of a banking conference last week, “Though the base rates of banks have not changed, banks have been increasing the premiums over the base rate. So lending rates are rising.” RBI is of the view that banks should bring down their net interest margins (NIMs) but improve profitability by improving operational efficiencies. According to an RBI report, which was released last week, on the trend and progress of banking in India, “Maintaining profitability is a challenge, especially in a highly competitive and high interest environment. However, a detailed analysis showed that NIM that is already high in India compared with some of the emerging economies increased further. Thus, there is a need to reduce NIM increase other income and reduce operating expenses in the interest of efficiency and profitability.” RBI has already set up a working committee to look into the pricing issues for retail customers specially on floating rate home loans and prepayment clauses for retail loan like auto or home loan. But an RBI official confirmed that even large ticket loans extended to companies will be extensively evaluated for fair pricing. From July 2010, RBI brought in the base rate concept fixing a floor under which no loan can be priced. But now, banks try to keep the base rate low to meet the short term funding requirements of companies, which otherwise could have migrated to the debt markets in the form of commercial papers. It was to bring in greater transparency that RBI did away with the BPLR (benchmark prime lending rate) for customers as banks kept high BPLR and continued to lend much below that for large corporate clients while the smaller clients and retail customers were charged at higher rates of interest. "In a deregulated environment, transparency in pricing assumes greater significance in ensuring that the risk is priced adequately and borrowers are charged interest in a fair manner," the central bank said in its second quarter policy statement released on October 24. As per Capitaline Neo data, the current 12 constituents of Bank Nifty index had collective interest income from advances to the tune of Rs 1,34,145 crore in the first two quarters of FY12, up 37 per cent from the corresponding aggregate of Rs 97,388 crore in FY11. The Bank Nifty constituents are Axis Bank, Bank of Baroda, Bank of India, Canara Bank, HDFC Bank, ICICI Bank, IDBI Bank, Kotak Mahindra Bank, Oriental Bank, PNB, SBI and Union Bank.

FC

Banks in JK flout RBI norms

Despite consistently increasing their business in Kashmir, most of the banks operating in the Valley don’t adhere to RBI instructions on priority sector lending. Interestingly, some top-notch banks including HDFC Bank, ICICI Bank, Yes Bank, Axis Bank and IndusInd Bank also come in the list of banks that are flouting the Central Bank norms laid down for lending to the priority sector including agriculture and loans to weaker sections. Interestingly, the HDFC Bank is planning massive expansion in the state, even as targeting to increase its branch strength to 50 by March. According to the latest RBI norms, all domestic banks have to disburse 40 per cent of the net bank credit to priority sector, out of which18 per cent should represent agricultural advances. The net bank credit is the figure reported in the fortnightly return the banks submit to the RBI. The RBI norms further provide that the banks should cater to the weaker sections of the society, particularly small and marginal farmers with five acre land holding and landless labourers, tenant farmers and share croppers.  For artisans, village and cottage industries, the banks, according to RBI guidelines, should extend individual credit limit up to Rs 50,000. Around 10 per cent of the Net Bank Credit has to go to weaker sections of the society and the Target Credit to women beneficiaries should be five per cent. The loans applications of the priority sector, RBI rules say, can be rejected by the branch manager, provided the rejection is later ''verified by the Divisional Manager or regional manager''. Figures reveal that most of the banks fail the guidelines. “The ICICI Bank only provides basic banking facility like deposits and ATM services while credit cards, loans and mandatory priority sector credit exposure are not being taken seriously,” sources said. Figures reveal that the Yes Bank, with deposits of around Rs 40 crore in the state, has not a single case of lending in J&K in any sector. “Both Axis and IndusInd banks have no lending facility at all and have restricted to customer deposits and banking services, thus making only profit with no credit exposure to contribute to the state’s economy,” sources said. However, a senior HDFC Bank executive said the HDFC Bank was aggressively advancing in the state. “We are here for the last five years only. During this brief period we have made around Rs 280 crore advances in J&K with about Rs. 100 crore to priority sector alone.” He said the Bank in the state has appointed entire staff as well as the top management from J&K alone. About maintaining 40 per cent credit target to priority sector, he said: “Although we may not be covering the 40 per cent target, but still our priority sector lending in J&K won’t be less than 35 per cent,” he said, adding that the RBI guideline for priority sector is not state or region-specific. Despite repeated attempts, officials of other banks could not be contacted for their comment.

Greater Kashmir

Allahabad Bank celebrates 147 years

 

'State cooperative banks up to snuff'

... He added that institutions like NABARD are not supporting the cooperative sector because of the policy changes of the RBI. "The RBI policies have affected the service attitude of the NABARD, which was compelled to enter the financial market when it didn't get sufficient fund from other operations. The move to commercialise NABARD adversely affected the cooperative sector," and claimed that all these moves are the result of globalization............

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Maharashtra Co-op Bank launches International Banking Division

Another Ponzi scam hits investors

... The duo also showed Memon certificates for trading and accepting funds from Reserve Bank of India," said sub-inspector of Navrangpura police station R N Gadhavi.....

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“Beyond Core Banking” at South Indian Bank

IFCI, DCB pull out of corporate debt recast model

.......State-run IFCI and the Development Credit Bank have pulled out of the corporate debt restructuring (CDR) model blessed by the Reserve Bank of India to bail out distressed firms, as the structure is lopsided and favours big lenders.........

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Wrong inflation forecasts hurt India's integrity: Ahluwalia

... The RBI has taken a number of steps. It's too early to say its not having an impact," Ahluwalia said. "All the research shows that monetary tightening takes at least 3-6 months.".....

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Private banks like ICICI Bank and HDFC Bank have better asset quality than state-run lenders

.... "The more important factor would be indication from the Reserve Bank of India that monetary tightening is nearing a pause and if we see some meaningful correction in global commodity prices and reforms on the policy front those could be triggers for a re-rating of markets,"........

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Should you invest in the banking sector?

.... The economy is slowing down and hence RBI may pause. But at the same time, inflation continues to remain high and if there is further spike, RBI may continue its tightening policy. In crux, how the interest rate cycle pans out is uncertain and so would be the movement in banking stocks.....

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For customers, interest rate plays key role in decision-making matrix

...“When the liquidity is tight or when we see the interest rate scenario pointing northwards, as we are seeing at this point in time, may be, the customer would be able to get a better return on his savings from the banking system. However, the reverse would happen when the liquidity is surplus and the overall interest rate scenario is different from what it is today,” said Mr Mallya, who is also the Chairman of the Indian Banks' Association. .........

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NBFCs feel the pinch

...Over the past few months, NBFCs have had to accept stricter rules and appear to be on even keel with banks on how they classify assets and bad loans. The double whammy has come in the form of the nervous macro environment in India where sustained tightening and rise of rates by the Reserve Bank of India (RBI) stymied credit growth....

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Should you invest in the banking sector?

...The economy is slowing down and hence RBI may pause. But at the same time, inflation continues to remain high and if there is further spike, RBI may continue its tightening policy. In crux, how the interest rate cycle pans out is uncertain and so would be the movement in banking stocks. But if country has to grow 7-8% in the future, banking sector would have to grow by 20%. Thus for long-term investors, the time is perfect to take exposure to banking stocks....

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Inflation to remain high till Dec,fall to 7.8% by Mar'12: Citi

...The RBI had last month revised its growth projection for the Indian economy in 2011-12 downward to 7.6% from the earlier estimate of 8%. Citi had also similarly revised its Gross Domestic Product growth forecast for India this fiscal to 7.6%.....

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Gold makes govt richer by over Rs one-lakh cr in 2 years

..Value of gold in the government's kitty has grown by over Rs 1,00,000 crore in about two years, helped by a sharp rally in the bullion price and a 200-tonne purchase from IMF in November 2009.......

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MFI sector needs regulation: Kidwai

Pitching for early enactment of the Micro Finance Bill, HSBC India Chief Naina Lal Kidwai has said the MFI sector has huge potential but needs regulations for growth. "The MFI sector has a lot of potential. But it needs to have a defined set of rules to function in a proper way...The Micro Finance Bill needs to get cleared at the earliest to achieve this," Kidwai told PTI. The government has already drafted the Micro Finance Sector (Development and Regulation) Bill, 2011. The Bill seeks to make it mandatory for all micro finance institutions (MFIs) to be registered with the Reserve Bank of India (RBI). It also entrusts the task of regulating the sector with the RBI. She said, "The sector should be developed but the interest rates should be checked... It should be seen that there are not many loans given to a single person". Micro finance -  the practice of giving small loans to poor people  - have come under intense scrutiny over allegations of high interest rates and coercive recovery tactics. Micro-credit is the lending small amount of money, usually less than Rs 10,000, to entrepreneurs to start or expand small businesses. These institutions source their funds from banks at an interest cost of 12-13 per cent and in turn lend at much higher cost of nearly 30 per cent. The MFI industry is going through a rough weather after the Andhra Pradesh government introduced an Act last year to regulate their activities following a string of farmer suicide in the state. The Andhra Pradesh Microfinance Institutions (Regulation of Moneylending) Act, 2010, requires MFIs to declare interest rates upfront and disclose all details relating to their borrowers.

BS