Chandigarh, Nov 25 (PTI) Concerned over the economic slowdown, RBI Governor D Subbarao today outlined the 10 challenges to keeping India''s growth story intact and asserted that "providing good governance" would be critical in this regard. There may be several challenges to acceleration of growth, he said, adding that identification of these areas and drawing up plans to address them is the relatively easy part. "What is infinitely more difficult is the translation of those policies into action," he said. Delivering P N Haksar Memorial Lecture here, Subbarao said, "In the ultimate analysis, it is the quality of governance that separates success and failure in economic development..." Among the 10 challenges, he said it would be imperative to bring inflation down to 5 per cent or even lower to regain the growth momentum and accelerate the rate further. He said a high inflation scenario makes both savers and investors uncertain and there is a need for a stable macroeconomic environment. Emphasising on the importance of a stable macroeconomic environment, he said the fiscal deficit needs to be controlled and inflation must come down. "The first is reduction of fiscal deficits... The second task is to bring inflation down first to 5 per cent and then even lower (for stable macro-economic environment)...," he said. The governor said the current inflationary woes are a consequence of both supply shocks and demand pressures. Maintaining that the RBI''s monetary tightening policy has been aimed at restricting demand and anchoring inflationary expectations, he said, "This has to be supplemented by supply side responses to raise the potential output of the economy."
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Saturday, November 26, 2011
'Need to bring inflation to 5%'
Reserve Bank of India (RBI) Governor D Subbarao on Friday said inflation must be brought down to five per cent, or below that, to stabilise the macroeconomic environment and facilitate sustainable growth. "A high-inflation scenario makes both savers and investors uncertain," said Subbarao. He added the monetary tightening policy was aimed at restraining demand and anchoring inflation expectations. India's inflation indicator — the wholesale price index — has been above nine per cent for the last few months. To tame inflation, RBI has raised policy rates by 375 basis points in thirteen tranches since March 2010. The central bank expects inflation to ease in the December-January period, before declining to seven per cent by the end of March. While monetary tightening addresses demand-side pressures, the central bank's efforts must be complemented by supply-side responses. "The current inflation we are experiencing is a consequence of both supply shocks and demand pressures," Subbarao said, adding it was necessary to reduce the government's high fiscal deficit to stabilise growth to sustainable levels. For the current financial year, the government had estimated fiscal deficit at 4.6 per cent of the gross domestic product (GDP), and this now increasingly seen as a difficult target. The RBI governor said India's growth was credible, but the country needed to increase agricultural productivity, expand employment and productivity, promote financial inclusion and bridge infrastructure deficit. He said infrastructure deficit was hampering faster economic growth and efforts to curb the deficit had fallen short. The annual infrastructure investment would have to be increased to 10 per cent of GDP from the current six per cent to meet the requirement of $1 trillion over next five years, as estimated in the 12th Plan. Pointing to the need of infrastructure financing in India, Subbarao said projects should be financed by long-term sources like insurance and pension funds, not banks, which could face exposure risks and asset-liability mismatches. "Since these markets in India are still not deep enough, the burden of financing infrastructure is falling on banks," he said. Corporate debt would go a long way in augmenting infrastructure financing, but the market was demand-constrained and needed attention, he added. On financial inclusion, he said banks continued to see it as an obligation, not an opportunity. He emphasised banks need to change their perceptions and tap business opportunities in unbanked areas.
‘Elephant dance must be rejigged’
RBI Governor D Subbarao on Friday said just as East Asians resembled tigers and China the dragon, India stood for an elephant. India's high-growth trajectory before the crisis proved elephants, too, could dance. "But the elephant dance was interrupted by the ‘zoo party’ of the global financial crisis. To get it back on course, we need to rejig the dance," he said.
BS
PPF to earn higher returns from Dec 1
NEW DELHI: The finance ministry has notified rules which will pave the way for small savings account holders to earn higher returns from December 1. Earlier this month, the government had accepted the recommendations of a panel which would help investors earn higher interest on small savings schemes. An expert panel, headed by former RBI deputy governor Shyamala Gopinath, had recommended moving to a market-linked interest rate system for small savings schemes that would translate into higher returns for now. The return on the Public Provident Fund ( PPF) scheme in the current fiscal year is expected to be 8.6%, up from 8%, while the return on the five-year national savings certificate plan would be 8.4% from 8%. The annual ceiling on PPF accounts will now go up to Rs 100,000 from the current Rs 70,000. Small savings accounts in post offices will now fetch 4% interest up from 3.5% now. Interest rates on deposits of other maturities would also go up from December. The finance ministry also notified that the sale of the popular Kisan Vikas Patra would be stopped from November 30. The panel was of the view that this instrument was being used in some areas for money laundering as it was a bearer instrument. The maturity period of monthly investment schemes (MIS) and national savings certificates would be reduced from six to five years. MIS would earn an interest of 8.2%, but accounts which are functional on or after December 1 would not be entitled for bonus. The reforms of the small savings schemes were stalled after protest from agents and some political parties. The agents were protesting the reduction in commission paid to them. The implementation of the report will help garner funds for the government from small savings schemes. The increase in the PPF investment ceiling is expected to get a good response from investors, officials said.
TOI
RBI deregulates interest on savings accounts in UCBs
The Reserve Bank today deregulated interest rate on savings accounts in Urban Co-operative Banks (UCBs), a move that will fetch better returns for depositors. RBI had freed savings bank deposit rate for the scheduled commercial banks last month. Subsequently, it had liberalised this for the Regional Rural Banks earlier this week. In a notification addressed to all Primary (Urban) Co-operative Banks, RBI said lenders are free to determine their savings bank deposit interest rate subject to two conditions. Under the first condition, the notification said, "Each bank will have to offer a uniform interest rate on savings bank deposits up to Rs 1 lakh, irrespective of the amount in the account within this limit." The other condition states that for savings bank deposits over Rs 1 lakh, a bank may provide differential rates of interest, if it so chooses. This would, however, be subject to the condition that banks will not discriminate in the matter of interest paid on such deposits, between one deposit and another of similar amount, accepted on the same date, at any of its offices, it said. Till now, such banks were mandated to give 4% interest rates on such deposits. The rate was increased from 3.5% in May this year.
BS
Global players wary of fine print on India retail invite
Global supermarket chains welcomed a long-awaited invitation from India to invest in the country's $450 billion retail market, but they fear the small print may keep a lid on investment in the short term..........
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With Economy Slowing, the Indian Rupee Tumbles
... For several months, India has suffered the double misfortune of a slowing economy and high inflation. Now, it has another problem: a rapidly depreciating currency.....
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RBI: opening up retail to help growth, curb inflation
India's growth story is still "credible" and the move to open up the economy to global supermarket chains will help growth and control inflation, RBI Governor Duvvuri Subbarao said on Friday. "It's commendable that government has taken the initiative. Let's hope that it will improve the logistics chain and supply chain management in agriculture," Subbarao said in a speech in Chandigarh. Late Thursday, the government approved 51 percent foreign direct investment in the supermarket sector, paving the entry of firms such as Wal-Mart, Tesco and Carrefour into one of the world's largest untapped markets. "It's important for not only raising overall growth but also important for containing inflation and improving quality of life over 50 percent of population," Subbarao said. Opening up the retail sector to global players has been a much awaited reform but has been long hobbled by political differences. The Congress-led government's biggest ally Trinamool Congress is opposed to the move. The RBI chief said that inflation needs to be brought down to 5 percent initially and then even lower, consistent with India's integration with global economy. Subbarao said the current inflation situation is a consequence of both supply shocks and demand pressures. Monetary tightening needs to be supplemented by supply side measures to raise potential economic output, he said. "Raising agricultural production and productivity is, important for containing price pressures, raising rural incomes and making growth more inclusive," Subbarao said. India's inflation, which is largely driven by high food and global commodity prices, plus expansive fiscal policies, is the highest among major economies in Asia. It's wholesale prices rose more than expected in October as the cost of food and fuel increased. The high inflation print, above 9 percent for the 11th month, was further evidence of the Reserve Bank of India's (RBI) inability to achieve a breakthrough in its fight against inflation despite 13 rate rises since March 2010. In its Oct. 25 mid-quarter review of monetary policy, the RBI had said that a rate hike may not be warranted if inflationary pressures start to ease by December. Slowing growth, stubbornly high inflation, rising interest rates, political gridlock, gloom in the West and a sliding rupee have conspired to dampen investor and corporate sentiment in Asia's third-largest economy. The RBI has lowered the country's growth forecast to 7.6 percent for the current fiscal year ending in March from 8 percent previously. Subbarao says a reduction of federal and state fiscal deficits are important steps for a stable macro environment. India's fiscal deficit during April to September was 2.92 trillion rupees, or 70.8 percent of the full-year target, government data showed. Most expect it to breach the 4.6 percent of GDP target for the fiscal year. The government said it would sell debt worth 2.2 trillion rupees, sharply above the budgeted 1.67 trillion rupees in the October to March period. Subbarao said that India being a emerging economy with a partly open capital account, floating exchange rate and a monetary policy that takes into account global developments, has to continue to manage the "impossible trinity." The impossible trinity refers to the economic hypothesis that a country simultaneously cannot have a fixed exchange rate, an open capital account and an independent monetary policy. Subbarao said the volatility in the foreign exchange market will remain until the euro zone crisis is resolved."Until there is a credible solution to the sovereign debt problem in Europe, we will see movements in the exchange rate," Subbarao said.He added that the central bank is watching the rupee, but could not say whether it will intervene in the forex market directly.The rupee has skidded nearly 17 percent from a 2011 high reached in late July as risk-averse investors flee emerging markets, increasing the difficulties for a government already struggling with high inflation, slowing economic growth and a widening trade gap.The rupee touched an all-time low of 52.73 on Tuesday and state-run banks were spotted selling dollars in the market in recent sessions, sparking talk of RBI intervention. On Wednesday, RBI deputy governor Subir Gokarn said intervention has been aimed at smoothing sharp movements in the rupee.
Reuters
MoF cries halt to NDF arbitrage to rescue rupee
...However, market players admit that containing the NDF market and bringing it onshore would be easier said than done. “The RBI has been trying to do this for years now but has somehow not succeeded,”....
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RBI warning on Gold Sukh‘ unheeded'
JAIPUR: Reserve Bank of India (RBI) had advised the special operation group (SOG) of the state police to look into the operations of Gold Sukh Trade India Ltd six months ago. However, the lackadaisical attitude of police resulted in a multi-crore scam which otherwise could have been avoided. In its half-yearly meetings with officials from police, financial institutions and other related agencies, the RBI had warned about Gold Sukh's dubious operations. But there was no response from the state police in this regard. The state government was also asked to bring an Act to regulate the multi-layered marketing companies. "RBI consistently issued circulars and urged governments to enact a law at their level so that the companies which work in grey areas can be accommodate under some law. Till date, 14 states in the country have done this and unfortunately Rajasthan is not one among them," an official said. However, G S Sandhu, additional chief secretary (home), who took over the post a month ago, said, "RBI sent a draft on regulating multi-layered marketing companies sometime back. The draft is now in the process and we will soon bring a law regarding this. In the meetings with RBI earlier, it does give us names and we had promptly taken actions." As per the law, if any company wants to engage in any business activity, it needs to register itself under the Indian Companies Act 1956. Once registered, they become incorporated under the act and termed as public limited company or private limited company. These companies are then regulated by a regulator enacted by Parliament or by the state government concerned. For banking and non banking financial services, RBI is the regulator and for stock markets, the regulator is Security Exchange Board of India (SEBI). However, there are certain companies which do not fall under purview of any of the regulators and that is where companies like Gold Sukh operates and takes advantage of the grey area. Earlier, the income tax department had conducted raids at four residential premises and one business premises of Gold Sukh here, but no strict action was taken against it. Sanjiv, additional director, income tax (investigations) said, "The I-T department had conducted a search and seizure operation at Gold Sukh in Jaipur in November 2009. The assessment of the property seized is still undergoing". "Lack of any regulator is the reason for the mushrooming of multi-layered marketing companies in the state. Punishment for willful attempt to evade tax above Rs 1 lakh is six months to seven years in addition to tax, penalty and interests on the seized amount," an financial expert said.
TOI
Forex counters at airports likely to be relocated
...The question was exactly where the RBI guidelines regarding holding, buying or selling foreign exchange, as well as the provisions of the Foreign Exchange Management Act would come into play.....
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When norms change with changing times
.. Comprehensive instructions from the RBI were issued to banks in 2008, which was updated in 2009. Prior to this, only sporadic circulars on the subject was issued by the RBI. Banks were also given specific allocation for housing finance on an annual basis effective as on July 1 every year, based on the deposit growth.....
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RBI needs to raise PCFC rates according to market realities: FIEO
NEW DELHI: The Reserve Bank of India (RBI) has been requested by the Federation of Indian Export Organisations (FIEO) to raise the packing credit in Foreign Currency (PCFC) rates, which are in line with market realities, said Mr Ramu S Deora, President of FIEO. Mr Deora while speaking on the all-in-cost trade credits to 350 basis points (from 200 basis points) has stated that this would be helpful in achieving more dollars inflows to the Indian market. Mr Deora, said, “This is in keeping with the demand as the differential between rupee interest rates and dollars has accentuated further with the 13th hike on 25th October 2011 pushing policy rates to 8.5% whereas a six month LIBOR is still around 1%.” FIEO feels that RBI’s move to surge FCNR(B) deposit rates by 25-basis points will also accentuate dollar inflows (125 basis points from 100 basis points) apart from NRE term deposits where the banks can pay either LIBOR or at swap rates. Recently, RBI has surged the interest rates on Non-Resident (External) (NRE) Rupee term deposits and Foreign Currency Non-Resident (Banks) (FCNR-B) deposits. This move is likely to surge the flow of foreign exchange in midst of the poor domestic currency. The surge in rates will be making the funds more lucrative at a time when the Indian Rupee has declined strongly in the past few months.
RBI allows Iranian central bank to open A/Cs
Kolkata: In an effort to resolve a long-standing payment crisis, the Reserve Bank of India (RBI) has given permission to the Central Bank of Iran to open rupee accounts with two Indian banks, namely UCO and IDBI. "Permission from the RBI has very recently come to open rupee accounts with two Indian banks, one of which is UCO," a top official of city-based UCO Bank said. The other bank is IDBI Bank. Both the accounts were opened in the respective banks' Mumbai branches. The official said since the closure of the Asian Clearing Union (ACU) in December, payments for oil imports from Iran and non-oil exports to that country have been severely affected. The UCO official said there was some understanding between the RBI and the Iranian central bank about the mechanism of making payments. He said that the Iranian central bank would park funds in the two Indian banks to enable payments for oil imports by India as well as non-oil exports to Iran. To a query, he said it was not yet known whether the Iranian central bank had already parked funds in the two accounts. The official said while payments for oil imports would initially be in rupees, it would be then converted into a separate currency, which was yet to be decided by the apex bank.
Manorama
RBI Outstanding Loans to Govt $3 Billion
The Indian government's outstanding loans from the Reserve Bank of India under the ways and means advances facility were ($3 billion) 158.49 billion rupees in the week ended Nov. 18, up from ($2.5 billion) 132.72 billion rupees the previous week, the central bank said Friday. The WMA is a withdrawal facility provided by the RBI to the government to meet temporary mismatches in its cash flows. If the government's borrowing exceeds 75% of the WMA limit at any point, it has to repay the RBI by borrowing from the market through the auction of bonds. The government is allowed 10 consecutive working days to repay its overdraft with the RBI. The state governments' borrowing under the WMA facility was 13.22 billion rupees, compared with 7.49 billion rupees a week prior, the RBI said in its weekly statistical supplement.
WSJ
Sa-Dhan releases Bharat Microfinance Report 2011
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Rupee volatility to remain till eurozone crisis resolved : D Subbarao, RBI Governor
CHANDIGARH: Volatility in the foreign exchange market will remain until the euro zone crisis is resolved, Reserve Bank of India Governor D. Subbarao said on Friday. Subbarao said in a speech in the north-western city of Chandigarh that the central bank is watching the rupee, but could not say whether it will intervene in forex market directly. The rupee has skidded nearly 17 percent from a 2011 high reached in late July as risk-averse investors flee emerging markets, increasing the difficulties for a government already struggling with high inflation, slowing economic growth and a widening trade gap. The rupee touched an all-time low of 52.73 on Tuesday and state-run banks were spotted selling dollars in the market in recent sessions, sparking talk of RBI intervention. The rupee fell in afternoon trades on Friday as equities stayed negative and dollar demand from oil companies lingered. A fall in the euro also hurt sentiment. At 2:14 p.m., the partially convertible rupee was at 52.22/23 per dollar, weaker from Thursday's close of 52.065/075. The unit has so far moved in the 52.07-58.27 band. Traders said some comfort was seen from the government's decision to liberalise foreign investment in the $450 worth retail market, but big positions could be seen only after actual inflows materialise. The euro fell to a fresh seven-week low against the dollar on Friday and was set to weaken further as a lack of agreement between European leaders on how to tackle the spreading debt crisis in the euro zone continued to rattle nervy investors.
ET
Should RBI help to prop up the rupee?
Amid the brouhaha surrounding inflation and an industrial slowdown, the new joker in the pack appears to be the exchange rate...................
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Rate hikes and other factors driving up NPAs
...The increase in interest rates when growth has visibly slowed down affects the capacity of borrowers to service their debts to banks. Consequently, the NPAs of PSBs has increased sequentially from 1.92 per cent of gross advances in the quarter ended March 2011 to 2.11 per cent in quarter ended June 2011 and 2.36 per cent for the just concluded September quarter......
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Friday, November 25, 2011
Inflation ball in govt's court - K. KANAGASABAPATHY
Since food inflation is the basic problem, it calls for a supply side response on retail and MSP issues. Fighting inflation successfully requires understanding the nature of the beast. On this matter, there seems to be an extraordinary confluence of thinking between the central bank and the government, which is good and portends concerted action. This is evident from the Finance Minister's suo motu statement on inflation in Parliament, and the RBI Governor's address on the challenge of food inflation at the annual conference of Indian Society of Agricultural Marketing, both, by coincidence, released on November 22. The sum and substance of these two observations is that the Reserve Bank of India has done its part on the demand side, and the government has to do a lot more on the supply side. Governor D. Subbarao chose to address, in a candid manner, the issues relating to supply-side management, only to drive home the point that the ball was now in the government's court. The government, according to the Finance Minister, has initiated a multi-pronged response on the supply side, but for obvious reasons will take some time to produce results. The RBI's goal of containing the core non-food manufacturing inflation has been by and large successful, but food inflation is fuelling inflationary pressures a second time round. Food inflation increased from 7.3 per cent in 2008-09, to as high as 18.5 per cent in 2009-10, but came down significantly to 6.8 per cent in 2010-11.The build-up during the current year, up to October, had, however, been 9.5 per cent, against only 6.4 per cent in the previous year. During that period, non-food inflation increased from a negative 0.1 per cent in 2008-09, to 7.5 per cent in 2009-10, and further to 10.8 per cent in 2010-11, but thanks to the persistent anti-inflationary stance of RBI, the build-up, up to October in the current year was only 3.2 per cent, against 4.2 per cent in the previous year. If the transparently-indicated target of the RBI, namely the core non-food manufactured products' inflation is taken into account, the build-up during the current year has been only 2.2 per cent, against 3.0 per cent last year. The expectation of both the government and the RBI is that the inflation should come down by March 2012, to around 7 per cent. This depends very much on supply side responses. The Governor is, therefore, right in pointing his finger at the government in facing the current challenge of food inflation. If the supply side response isn't up to the mark or gets delayed, then the burden of containing inflation in the current environment will disproportionately fall on monetary policy, with a significant impact on growth. That should be the least-preferred choice. Addressing the challenge of food inflation has become complex for a variety of reasons. The responses, such as raising productivity, increasing capital formation, reversing land use, farm and non-farm occupational pattern, and improved water management etc., which will produce results in the medium to long term, nevertheless require attention. The Twelfth Five-Year Plan should address this issue in coordination with state governments, which have the Constitutional jurisdiction regarding agriculture and irrigation. What require attention are interventions relating to public distribution system, pricing and taxation policies, besides supply chain management. The Government may find it very difficult to resist the temptation of raising the minimum support prices (MSP) of essential items. The extent of increase in MSP had been several times more in the last four years, beginning 2007-08, than the increase during the preceding four years since 2003-04 . The system also indirectly led to the ballooning of subsidies. Since the MSP is based on cost-plus pricing, which would include an element of wage indexation, it has resulted in an extraordinary rise in real farm wages and created a vicious cycle, which the government must break. Secondly, the amendment to the Agriculture Produce Marketing (APM) Act needs to be carried out quickly, so that the cartel in supply chain is broken and the difference between farm gate and retail prices is narrowed for the benefit of both farmers and ultimate consumers. Thirdly, apart from APM legislative reform, the inter-ministerial group recently made a strong recommendation in favour of multi-product retail reform, including opening up of foreign direct investment into this area, albeit in a regulated fashion. Fourthly, as is being debated, there is scope for reducing State-level taxes on agricultural products. Last, but not the least, while the increased pressure on food inflation due to the employment guarantee scheme is highlighted, the need to curtail conspicuous consumption, particularly during marriage and festival seasons, hasn't received any attention. One tendency in food inflation, in recent years, has been that it hadn't eased during the second part of the fiscal. The second Prime Minister, Dr. Lal Bahadur Shastri, introduced a scheme of ‘miss-a-meal' every week, during the time of the first Indo-Pak war in 1965. The Government should consider introducing a similar measure, apart from of introducing an appropriate expenditure tax that could moderate seasonal spurts in conspicuous consumption.
HBL
Govt's move for smooth transition at helm of banks
It was not too long ago that top posts in public sector banks remained vacant for months due to governmental delay in identifying suitable candidates. Such state of affairs have, in the past two years, prompted the administration to expedite the selection process by issuing notifications much before bosses vacated office. This is in a bid to avoid lobbying and last-minute changes. Now, the government has taken the matter another step forward. It has asked the new chief (executive director) to join a bank 10-15 days before the retirement of the existing chairperson. The new system will be applicable also to general managers, who will eventually be elevated to as executive directors. Dena Bank, for example, is set to see the retirement of its chairman and managing director D L Rawal this month-end. His successor, Indian Overseas Bank’s executive director Nupur Mitra, will next week join the Mumbai-based bank. She will be taking charge as an Officer on Special Duty on Monday — seven days before Rawal’s superannuation. The move is aimed at helping the new chief acclimatise with the bank’s working culture and interact with the top management, including the outgoing head, to get a feel all matters including issues. Such a practice,” a source said, “will also ensure that a new boss does not reverse a policy decision soon after taking charge.” Bankers see this government decision as a fallout of the poor earnings announced by the new management of the State Bank of India for the January-March quarter. The country’s largest bank declared a 99 per cent decline in profit, which stood at Rs 21 crore for the last quarter. That comes as the lowest in the bank’s history in more than a decade — and is attributed to higher provisioning. The government had in April announced a new chairman for SBI, following the retirement of O P Bhatt in March. Three new managing directors were also appointed along with top boss Pratip Chaudhuri. Bankers now expect a new chief will always be appraised of future provisioning requirements and outlook on asset quality. While bankers have hailed the move to make transition smooth, some of them raised eyebrows, claiming that it may impact taking decisions. Says a senior executive from a mid-sized public sector bank: “There can be a delaying on certain decisions, especially regarding loan sanction. For, the outgoing boss may mostly be hesitant to sanction fresh loans.” The decision-making powers during the overlap period will stay with the existing chairperson. The new chief will take assume the role of the chairperson after his predecessor retires.
BS
MoM eyes common man’s wallet
...MMPL that has been allowed by RBI to launch financial services on mobile phones is bullish that it can enroll a million customers in a short time. India has nearly 900 million mobile subscribers with nearly 60 per cent of them being active.....
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ISI pockets Rs 500 cr annually from fake Indian notes
...To counter the menace of counterfeit currency, RBI has devised a plan with the Union home ministry that entails having nodal police stations in every district to track fake notes, its annual report said.....
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EDB gets Rs1.6 cr NABARD assistance
Srinagar, Nov 24: National Bank for Agriculture and Rural Development (NABARD) today presented a cheque of Rs 1.64 crore to Ellaquai Dehati Bank as financial assistance for orienting its branches to Core Banking platform. The cheque was presented by D D Gupta, Assistant General Manager NABARD to A K Razdan, Chiarman E D Bank in presence of Board of Directors of the Bank which include Mustaq Sidiqi, Special Secretary Finance, J&K Government, P K Abrol, Regional Manager, Region III, State Bank of India, Baldev Raj, AGM Reserve Bank of India and Abdul Majid Shah, Advocate, Govt of India nominee, at a simple but impressive function held at the head office of E D Bank . While presenting the cheque, Gupta said NABARD is all out to help Rural Banks in implementing the modern technology for day to day operations so that the people living in far flung areas can get all the facilities of an urban modern commercial bank at their door steps. He appreciated the role played by Ellaquai Dehati Bank in providing banking facilities to the rural people at an affordable cost. Speaking at the occasion Razdan said: “Our Bank has a target to cover all the 35 unbanked allotted villages under financial inclusion.” He said the Bank has recently opened five more branches in its area of operation so as to cover the un-banked villages. He thanked NABARD for providing financial assistance for putting the bank on core banking platform and expressed his confidence in providing all the financial services to its rural clientele at their doorsteps.
Greater Kashmir
CIC directs RBI to disclose details of penalties imposed on banks -
...In another victory for RTI activists, the Central Information Commission has directed the Reserve Bank of India (RBI) to disclose names of banks which have been penalised or served show-cause notices for violation of laws....
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The challenges in banking
The underlying theme of the Reserve Bank of India's report on ‘Trend and Progress of Banking' for 2010-11 is that domestic banks, which have acquitted themselves quite creditably in the recent past, will have to equip themselves to face an uncertain future. Increasingly, the banks and their regulator will be evaluated against global benchmarks. So far, banks in India have grown, showing remarkable resilience. Sporting adequate reserves of capital and liquidity, they have been able to improve both their profitability and asset quality. Given the high growth potential of the economy and favourable demographics, banks have immense opportunities to expand their business with traditional as well as innovative products. However, they face a number of challenges. Important among them are two: to maintain capital adequacy and to put in place risk management systems that would meet global standards. For some of the larger banks, the process of moving towards the Basel III regulatory regime has already begun. While the banking system as an entity may not have any great difficulty in adjusting to the new capital rules, there might be slippages at the level of individual banks, and they would have to augment their capital urgently. Studies by the RBI show a high level of inter-linkages among banks and this introduces an element of vulnerability. Checking the contagion will become particularly onerous for the RBI if the less regulated entities such as non-bank financial companies and mutual funds are also taken into reckoning. Management of asset quality has always been a challenging task. It's more so now, because the apparent improvement in the levels of non-performing assets hides some disquieting trends. For instance, loan recoveries have not kept pace with slippages since 2007-08. The rising interest rates and the substantial restructuring done during the crisis period can undermine the asset quality of banks. There is an urgent need for all banks to address the NPA-related concerns and tighten their credit risk management systems. Over the past 15 years, Indian banks have raised the productive level remarkably and, in the process, moved closer to global benchmarks. Yet, they should do a lot more by way of attracting people's savings and channelling them into investment. In effect, this means banks will have to cut their ‘net interest margin', which in any case is high compared to some emerging economies. In the long term, the bank sector should work towards financial inclusion, where its products are accessible to everyone and its services run efficiently. In the medium term, banks have ample opportunities to grow, the challenges notwithstanding.
HBL
NRE term, FCNR deposit rate hikes: ‘Too little, too late'
Thiruvananthapuram, Nov 24: The Reserve Bank of India may have acted too little and too late with respect to the revision in NRE term (100 bps) and FCNR (B) (25 bps) deposits rates. This is the general impression that one gets from the largely mixed response to the RBI move from the banking sector in Kerala. The hike was announced late last evening as part of the bid to shore up the country’s weakening exchange rate defence against the continuing attack on the rupee. According to sources in the banking sector that includes State Bank of Travancore, the largest player in the remittances sector, the prevailing interest rates start at 2.69 per cent or thereabouts for NRE remittances. Even if this increase is to get reflected in the rates, this would not match the 4 per cent now being offered on NRE savings bank deposits. The rate-sensitive NRE customers would have a hard look at the rate differential before committing on any incremental investment decision. So, bankers are not exactly enamoured by the RBI move. Inflows had peaked when the rupee had crossed the psychological Rs 47 to a dollar barrier, but the rate of flow has not seen any dramatic swing on the upside, according to sources. The Rs 47 to a dollar level was the best rate, as has been seen from the way in which the flow of remittances has behaved since August. Since then, the rupee has been on a roller-coaster ride, weakening no less than 18 per cent. But flows have not been as dramatic, to say the least, banking sources said. The Asset-Liability Management Committee (Alco) would have to take a call on revising the base rate, if at all, as a follow-up to the hike in NRE and FCNR (B) interest rates, a source in State Bank of Travancore said.
HBL
Is India Inc over-leveraged?
With the higher inflation-led interest rates reaching multi-year highs, the questions of over-leveraging risks are once again back on the investors’ minds..............
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RBI may hold interest rates even if rupee fall impacts inflation
NEW DELHI: The sharp slide in the Indian rupee, Asia's worst performing currency, will add slightly to inflation by raising the cost of imported goods, but that may not be enough to prompt the Reserve Bank of India to raise interest rates at its December policy review. The rupee has slid more than 14 per cent this year against the U.S. dollar, with most of the losses coming in the last three months, as investors cut exposure to riskier assets amid Europe's raging debt crisis, fears of a global recession and signs of a domestic economic slowdown. Strains on India's current account balance and the fiscal deficit have heaped further pressure on the rupee, with a poll this week showing investors have turned the most pessimistic on the currency in more than three years. Much of the inflationary pressure from a falling rupee comes from crude oil, which makes up a third of India's total import bill. But the resulting impact may only add between 20 and 50 base points to headline inflation, economists say. That would be something that policymakers could live with, given worries that 13 rate hikes since March 2010 are now hurting growth even as global demand sputters. "As far as the current cycle of tightening is concerned, I think we are done for now," said Shubhda Rao, chief economist with Yes Bank. Yes Bank says headline inflation will fall from December to about 7 per cent by end-March, in line with forecasts from the Reserve Bank of India. Inflation in October was stronger than expected, remaining above 9 per cent for the 11th straight month. "I do not completely rule out inflation breaching the double-digit mark in November but I think the base effect will come into play in December and we would expect inflation to trend down after that," Rao said. A senior finance ministry source said on Wednesday that the rupee could stay in the region of 50 to a dollar for three months, indicating that inflation from commodity exports could continue to add pressure to prices. Others say that with the Indian economy showing definite signs of fatigue, the risks to growth for Asia's third-largest economy will be the key criterion that will shape RBI's policy response. "I expect RBI to pause in December because in deciding its monetary stance it would be more guided by risks to growth and other macro factors", said N.Bhanumurthy, economist with National Institute of Public Finance and Policy, a Delhi-based policy think tank. While more than a dozen rate hikes have failed to cool price pressures, largely because of domestic constraints such as poor infrastructure and an addiction to subsidies, economic growth has definitely started to suffer as credit conditions tightened. Many policymakers now project it could slip to as low as 7 per cent this fiscal year, the lowest since the depths of the 2008/09 global financial crisis.
ET
Stop being in denial, please
.... India’s macroeconomic situation does look terrible. The fiscal deficit is likely to be at least 5.5 per cent of GDP, with negative surprises on both revenue and subsidy payments. The borrowing requirement of the government is already affecting demand, with yields spiking, bond devolvements and the RBI forced to carry out open market operations and liberalise FII flows into debt markets. Inflation is looking horribly sticky, with the rupee depreciation wiping out any gains from commodity price weakness. Growth is slowing and the external deficit is also starting to threaten the economy......
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Salting away for a rainy day
CHENNAI: Self-employed professional T Mukund hasn't decided what to do with the Rs 10 lakh in his savings bank account . "I have opted for the sweep-in facility, where the amount over a certain level is automatically transferred to a deposit that earns higher interest . The RBI has hiked rates 13 times so far. I am expecting further increase in rates so I am not shifting my funds," he says. Mukund is not likely to be disappointed with banks bringing introducing new product features for customers with deposits over Rs 1 lakh. Deregularisation of interest rates on saving deposits and a differentiated interest structure for amounts below and above Rs 1 lakh will result in further rise in the average balance in accounts. Private banks like Yes Bank have already raised their interest rates on deposits to 6%. Kotak and IndusInd are close behind at 5.5% for up to Rs one lakh and 6% for deposits over one lakh. Further impetus will happen when nationalised banks start unveiling new features. "We will be offering multiple products under our saving bank portfolio soon," says K R Kamath, chairman and managing director , Punjab National Bank.
TOI
Liquidity woes overseas to test RBI's vow to hold rates
MUMBAI: Tightening liquidity in the international financial markets and the reluctance of European banks to lend to emerging market companies could test the Reserve Bank of India's vow to hold interest rate increases, as firms turn to local banks pushing market rates higher. The slump in the Indian currency, which has fallen to its life-time low, is another deterrent for companies to seek overseas loans despite lower interest rates, as benefits of funding costs are negated by a falling rupee. In some cases corporates even end up paying more than what they would to local lenders for short-term funds. Local banks, despite 13 rate increases, have reported an 18% loans growth over a year earlier. With deposit rates still lagging behind loans, companies dumping overseas plans may push market rates higher as there could be a funds crunch with the RBI hesitant to change its anti-inflationary stance. Banks on an average borrowed Rs 1.26 lakh crore this week from the central bank. "When there is turmoil in overseas markets, borrowers may prefer to tap domestic market rather than overseas markets," said AS Bhattacharya, chairman & managing director at Bank of Maharashtra. "At least they would be able to raise money at their convenience. It is possible that interest rates in overseas market are lower than the domestic market, but they would also bear in mind that they are able to raise money just when they need it rather than facing uncertainty." Approvals for overseas borrowings by Indian companies in September has fallen 43% to $2.36 billion, from $4.17 billion in July, RBI data shows. It was $3.7 billion in August. Syndicated debt, loans offered by a group of banks to a company, too has slumped. Loans issued since the start of October totaled $1.3 billion, compared with $13.1 billion in the previous three-month period, Bloomberg data shows. BNP Paribas, Deutsche Bank and Credit Agricole are selling their loans to improve capital positions in ring-fencing from losses in Greek, Italy, Portugal and Spanish sovereign bonds. The devolvement at the German bonds auction on Wednesday has triggered fears that liquidity could tighten further. Rabobank, the Netherlands-based lender with the world's top rating, will next year borrow just half of what it did in 2011. "The ability to raise fresh funds in the dollar market is where there would be more challenges," said Chanda Kochhar, MD and chief executive at ICICI Bank. "So, for people to fund requirements they will have to rely more on the rupee funding as of now, which means in general the interest costs will be high. In the past, there was a possibility of using foreign currency funds and bringing down the interest costs. That possibility is becoming remote." Higher borrowing costs are already biting companies which have reported their worst profit margins in seven years.
ET
RBI’s purchase of govt bonds to ease liquidity is harming economy
...The RBI has been highlighting the fiscal profligacy of the government in all its policy statements. Sounding a warning on deficit and then supporting the deficit by buying bonds is contradictory....
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AK Purwar expects further rupee turmoil. Is RBI watching?
AK Purwar, industry expert points out that although this rate cut is an unquestionable stance, PSU banks look strong amid lingering short-term headwinds
Moody’s have downgraded the Indian banking sector, citing concerns of rising non-performing assets (NPAs). However, AK Purwar, industry expert points out that although this rate cut is an unquestionable stance, PSU banks look strong amid lingering short-term headwinds. In the wake of recent heavy foreign institutional investments (FIIs) pullout hurting cash supply, the Reserve Bank of India (RBI) has loosened rules for companies to borrow abroad. It has raised the interest rate on bank deposits by citizens living abroad to help stem the rupee’s decline. The currency, today, rebounded from an eight-day fall. However, Purwar expects to see a marginal depreciation in rupee going forward. In an interview with Bloomberg UTV he said, “The apex bank is taking initiatives to ease dollar supply.” He stated that the RBI is taking steps to boost forex flow into India. Commenting on India’s growth rate, Purwar said that Asia’s third largest economy could be looking at gross domestic product (GDP) growth rate of 6.5-7%.
RBI has given a short-term confidence to market
... The RBI has given a short-term confidence to this market in terms of the panic runaway move that it had. And for now the upside seems to be capped at around 52.50-52.60. We see an interim pullback probably up to the levels of 51.50 over the next few days....
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Pranab claim specious,short on facts: CPI (M)
...The CPI(M) demanded that the Centre direct the Reserve Bank of India to intervene in the market to stabilise the rupee, and curb speculative FII flows.....
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Rupee's fall
In the news report “Rupee breaches 52-mark” (Business Line, November 22), it is reported that the rupee has been Asia's worst-performing currency, weakening 17 per cent against the dollar this fiscal. Heavy dollar demand from foreign institutional investors (FIIs), importers and oil companies saw the breach at a 32-month low. The Secretary (Economic Affairs), Ministry of Finance, says that the central bank's ability to intervene in the foreign exchange market is, however, limited. There was no matching supply for the demand for dollars. Though the rupee came under tremendous pressure, the RBI intervention in the market was only a token. This situation clouded the rupee's sentiment.
T. V. Jayaprakash (HBL)
Rupee and the bears
... It is 20 years since India had a balance-of-payments crisis and for a long time the talk has been about it becoming an economic superpower. But there lingers a memory of when it felt it was a financial hostage to the world, and this helps explain the whiff of panic now in the air.....
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Where RBI got it wrong
...The RBI's preference to raise interest rates, if anything, has only stifled supply response by eating into the profits or investible surpluses of firms and disincentivising them from augmenting productive capacity. In the process, it has contributed to a slowdown, while not curbing inflation either....
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SBI, ICICI Bank scrap pre-payment charges on housing loans
...The country’s largest lender, State Bank of India (SBI), and the largest private sector bank, ICICI Bank, have abolished pre-payment penalty on home loans with immediate effect....
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Thursday, November 24, 2011
Why are RBI and FM contradicting each other and confusing markets?
Well, this is confusing.On Wednesday, CNBC TV18 and NDTV Profit quoted finance minister Pranab Mukherjee as saying that “the Reserve Bank of India would do whatever is needed to stabilise the rupee.” The comment comes a day after RBI Governor D Subbarao said no decision had been taken on whether the central bank would intervene in the foreign exchange markets to stem the rupee’s slide. On Tuesday, the rupee slid to an all-time low of 52.73 against the dollar on heavy dollar buying. Today, the rupee was more subdued, trading in a range amid speculation that the RBI had indeed stepped into the markets to inject some calm. However, if you go by what RBI officials have been saying recently, don’t expect that to become a habit. Last week, Subir Gokarn, a deputy governor at the central bank, cautioned that the RBI would be careful about using foreign exchange reserves aggressively to limit the rupee’s depreciation. Typically, the RBI has a hands-off policy regarding the foreign exchange market and only steps in to check the rupee’s value when absolutely required. In other words, only in extreme situations. However, Mukherjee’s statement seems to contradict that. In order to ‘stabilise’ the rupee, especially against the background of a snowballing eurozone crisis, the RBI might have to step in every other day. Is it really prepared to do that? All Subbaro has said is that the RBI is “watching the situation and would ensure the exchange rate does not impair economic stability”. “We expect that a reverse adjustment (in the rupee) will take place when the European situation resolves itself,” Subbarao told reporters on Tuesday. That means he expects the rupee to self-correct in time. Mukherjee’s statement will just confuse the markets, at a time when there is already so much uncertainty about how the rupee will perform each day. To be honest, Mukherjee should not be making policy statements on the currency (and what he said pretty much amounts to one), especially when the responsibility of currency management lies with the RBI. It would also help if he stopped contradicting himself as well. On Tuesday, Mukherjee acknowledged central bank intervention in the currency markets would have a limited effect on the rupee’s value. Now, he says the RBI will do whatever it takes to calm the forex markets. Why pressure the RBI into doing something when you know it’s only going to have a limited effect? Worse, who are markets supposed to believe?
Firstpost
Former bureaucrats, bankers likely to be on oil PSU boards
The government is likely to appoint former Home Secretary GK Pillai, former Foreign secretary Shyam Saran and former SBI Chairman O P Bhatt and several other bureaucrats as independent director on the boards of oil PSUs. Sources said Pillai has been shortlisted for Hindustan Petroleum Corporation Ltd (HPCL) board, while Saran has been chosen for Indian Oil Corp (IOC) board. For the three vacancies in Oil and Natural Gas Corp (ONGC), former Expenditure Secretary Susma Nath, Bhatt and IIM-A Director S K Barua have been shortlisted. The Reserve Bank of India's former Deputy Governor Shyamala Gopinath and Nath will share the board of IOC with Saran. Gopinath, along with former Department of Industrial Policy and Promotion (DIPP) Secretary, R P Singh, former Minority Affairs Secretary Vivek Malhotra and retired Chairman and Managing Director (CMD) Bank of Baroda Anil K Khandelwal have been chosen for GAIL. For HPCL, former Revenue Secretary P V Bhide, IIM-A Professor, G Raghuram and Canara Bank CMD A C Mahajan have been recommended besides Pillai. Sources said names have been approved by government head hunter public enterprise selection board (PSEB) and after the approval from the oil ministry have been forwarded to cabinet committee on appointment (ACC) for formal go-ahead. ACC is headed by Prime Minister Manmohan Singh and also comprises Home Minister P Chidambaram.
BS
Macroeconomic doyen passes away
K Krishnamurty, fondly known among peers as ‘KK’, an eminent and first-generation macro economist, passed away at his home in Hyderabad on the early hours of November 23. He was 76. He graduated from Andhra University and obtained a doctorate for work on macro econometric modelling from the University of Pennsylvania, under the guidance of later Nobel laureate, Lawrence Klein. After his Ph.D, he joined the Institute of Economic Growth, Delhi, and continued to work on macro modelling. At the Institute, he held the RBI Chair professorship and later served as Director. He also worked at the International Monetary Fund for five years. After his retirement from IEG, he joined the Administrative Staff College of India, Hyderabad, as visiting professor and continued there till the end. He was also a past president of the Indian Econometric Society. Krishnamurty’s contribution to Indian macro economics is vast. He wrote a number of articles based on model simulations. His work on ‘Inflation and growth: A model for India’ in 1984 is a basic reference even today for any macro modelling exercise and very relevant to understand the current growth-inflation tradeoff issue. In the early 1990s, with V N Pandit of the Delhi School of Economics, he pioneered a macro model for India, under the Global Project LINK supported by UN-DESA, popularly known as the IEG-DSE model. His foresight may be seen from the model’s distinct recognition of the role of infrastructure in overall growth, currently discussed in policy formulations. Other contemporary issues such as thresholds in fiscal expansion and inflation, crowding-in and crowding-out, etc, were also inbuilt. The IEG-DSE model soon built a reputation as a rigorous exercise and is widely respected in both academia and policy circles. The forecasts derived from this model were extensively used in policy making. Even after his retirement from IEG, he continued to keep abreast with economic developments and contributed to the model, now known as the India-LINK model, as an advisor. The long discussions with him before we finalised the forecasts were always enlightening and he was always encouraging with new insights. The last such discussion was less than a week before, when he drew my attention to a piece in a business daily on the risks in achieving 12th Plan growth targets. Krishnamurty was known for meticulous data reading, which he says that he learnt from his doctoral supervisor, Klein. Before estimations, he used to look at the data and graphs for a long time and try to understand the factors behind each turning point of the series. He always sat with his research team and thought aloud regarding data, economic theory and modelling issues. This immensely benefited the young researchers who worked with him. His presidential address to the Indian Econometric Society on ‘Macroeconometric models for India: Past, present and prospects’ could have been written only by a person like him, who’d toiled with large data sets (most of the time very noisy), who’d seen through the changes in parameters following fast-changing Indian macroeconomic behaviour, and who’d experienced the impact of changes in the methodology of macroeconomic modelling. In his passing, the Indian macro economics profession has lost a pioneer. He is survived by wife Malathi, daughter Sandhya and a son, Srinivas.
BS
Nupur Mitra: A cheerful rise through the ranks in Indian banking
... This provided her an insight into legal procedures and regulatory issues. Her UK posting coincided with the current RBI Deputy Governor K.C.Chakrabarty's stint there as head of Bank of Baroda's UK operations. Recalling those days, Mitra says that it was a great learning opportunity to work as Chakrabarty's peer as he represented Indian banks at meetings with regulators...
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Strengthening RBI
This refers to the article “Change the law to strengthen RBI” (Business Line, November 18). The call to strengthen financial institutions and avoid the temptation to create new ones, in order to resolve relationship problems, comes at the right time. The government should start trusting institutions by making them trustworthy, and withhold advance comments by top functionaries, on what the regulatory institutions should be doing within their functional boundaries. This isn't a comment against mutual consultations on important policy issues at every stage, but an appeal to avoid media glare while sharing opinions on measures regulatory bodies should take in a given situation. It would be prudent to not unsettle the practices evolved with regard to core functions of the RBI.
M. G. Warrier Mumbai (HBL)
Co-op banking needs revamp, despite rising credit flow, says Nabard
The state-run National Bank for Agriculture & Rural Development (Nabard) has sounded an alarm over the state of the cooperative banking sector largely due to lack of professionalism and non-adherence to banking norms. This is despite a rise in agricultural credit flow from these banks. Nabard fears that as many as 60 banks — 56 district central cooperative banks (DCCBs) and four state cooperative banks (SCBs) — may not get their licence renewed by March. Unless RBI extends the period, the deadline for some of the cooperative banks would actually end in March 2012. A Nabard official, who did not want to be identified, told Business Standard: "Out of 56 DCCBs, the biggest problem is in Uttar Pradesh, with 23 DCCBs being non-compliant with Section 11 (for maintaining minimum paid-up capital and reserves), covering eastern UP. This is where agriculture productivity needs to increase, but these are unlikely to get a licence by March 2012, resulting in half of UP not getting any agricultural credit from the cooperative sector. There are 10 DCCBs in Maharashtra, seven in MP, four in Jharkhand and a couple of SCBs also not meeting the deadline. We have to find alternatives, at least in eastern UP, immediately." Adding: “Nabard is in the midst of preparing a road map to see if some of these banks can get the licence. The objective is that farmers must get agricultural credit. Nabard is exploring options, including increase in refinance and use of Rural Infrastructure Development Fund money.” In a recent presentation to the finance minister, Nabard said banks had as on August 31 disbursed close to Rs 2 lakh crore out of the target of Rs 4.75 lakh crore set by the finance minister in the year’s budget speech. Commercial banks had disbursed Rs 1.24 lakh crore of their target of Rs 3.55 lakh crore, or 34.9 per centof the target; it was 40 per cent of the target last year for the same period. While cooperatives had disbursed Rs 44,000 crore of their target of Rs 69,500 crore, which is 63 per cent of the annual target, compared to Rs 27,000 crore disbursed by them by this time last year, or 49 per cent of the target. It is Rs 17,000 crore more. In other words, during the kharif season, the cooperatives had already used up most of the credit they were expected to disburse for the whole year, with rabi still on. As for regional rural banks, against the target of Rs 50,500 crore, they disbursed Rs. 23,000 crore or 46 per cent, compared to 43 per cent last year. "So, in absolute terms, cooperatives and RRBs have provided a significantly large amount of credit. The banking system as an aggregate (all commercial banks, cooperatives and RRBs) had provided credit as on August 31 to 27.2 million accounts, compared to 20.9 million accounts (for the same period) last year. Commercial banks did so from 8.6 million accounts last year to 9.3 mn. Cooperatives have done remarkably well in this field. Last year, they had financed by this time 9.3 mn farmers; this time they have already financed 14.28 mn farmers,” Nabard said.
BS
Licensing of new banks: Industry bodies seek changes in listing norms
Apex industry associations such as Ficci and Assocham have urged the RBI to increase the time-limit for listing of shares by new banks in the private sector to at least five years. The draft guidelines for ‘licensing of new banks in the private sector' stipulates that new banks should get listed on the stock exchanges within two years of licensing. This stipulation is not pragmatic and feasible as the new banks may take considerable time to establish their operational and strategic performance, Assocham said in a note to the RBI. The FICCI said the time limit should be increased to five years as banks' operations would take at least five years to reach a level of stability. Assocham has also made a case for granting banking licences to stock broking companies. The draft guidelines stipulate that entities in real estate and stock broking would not be eligible for banking licences.
HBL
'Banks told to slash remittance charges'
To improve remittances coming into the country, the government has advised banks to review existing charges on them. "Banks have also been advised to review their existing scale of charges, both at the foreign and domestic end to minimise the current cost of remittances," Minister of State for Finance Namo Narain Meena said in a written reply in the Rajya Sabha yesterday. Banks may also endeavour for improvements in infrastructure and extending the scope of electronic payment mechanism for inter-city settlement among the banks in India, so as to reduce the cost of non-resident Indian (NRI) remittances, he said. Giving details of remittances to India, he said, India received USD 55.8 billion in 2010-11 as against USD 53.9 billion in 2009-10. During 2008-09, the country received remittances to the tune of USD 46.9 billion. The banks have also been advised to put in place an 'Awareness Programme' to sensitise NRIs on the options available to them in minimising the cost of remittances, he said, adding, this will make the costing more transparent.
FE
Co-op banks to adopt 3-month rule on cheque validity from April
Mumbai, Nov 23: The RBI has directed co-operative banks not to make payments on cheques and other financial instruments that are over three-months-old from next fiscal. “The RBI directs that with effect from April 1, 2012, banks should not make payment of cheques/drafts/pay orders/banker’s cheques bearing that date or any subsequent date if they are presented beyond the period of three months from the date of such instrument,” the Reserve Bank of India said in a circular to all state and central cooperative banks. The directive comes a few days after the central bank issued similar directions to scheduled commercial banks, stating that such instruments will not be valid if they are over three months old. “In India, it has been the usual practice among bankers to make payment of only such cheques and drafts as are presented for payment within a period of six months from the date of the instrument,” the circular said. “The RBI is satisfied that in public interest and in the interest of the banking policy, it is necessary to reduce the period within which cheques/drafts/pay orders/banker’s cheques are presented for payment from six months to three months from the date of such instrument,” it said.
HBL
Interest rates likely to remain high for a long time
... Whether the government will be able to bite the bullet is, of course, doubtful and, given its track record, the odds are not favourable. But if it doesn’t act soon, interest rates could remain high for a long time.
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RBI ups interest rate ceiling on NRE, FCNRB deposits
MUMBAI: India's central bank on Wednesday raised the interest rate ceiling on the non-resident external (NRE) rupee deposits and the foreign currency non-resident banks (FCNRB) deposits citing prevailing market conditions. The interest rates on NRE term deposits for one to three years maturity will now not exceed LIBOR/SWAP rates plus 275 basis points against 175 basis points earlier. "The interest rates as determined above for three year deposits will also be applicable in case the maturity period exceeds three years. The changes in interest rates will also apply to NRE deposits renewed after their present maturity period," the Reserve Bank of India said in a release. The RBI added the interest rate ceiling on FCNRB deposits of all maturities will now be LIBOR/SWAP rates plus 125 basis points from 100 basis points earlier.
ET
Interest rates likely to remain high for a long time
... But if inflation in India has become structural, as RBI says, does it mean we have entered a period when interest rates will remain high? As long as inflation remains sticky, RBI cannot afford to let down its guard.....
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RBI firefights rupee slide
... The Reserve Bank of India (RBI) on Wednesday announced a slew of measures to arrest the decline of the rupee, which has lost 14 per cent of its value this year and is the worst performer among Asian currencies. The regulator has also stepped up its surveillance with banks to keep a check on speculative activity by market participants.......
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Is the worst of the rupee panic over?
... "Although, it is not being called an end to the decline of the rupee as yet, there is a sense that perhaps people who are speculatively selling shorting the rupee will now look over their shoulders and will not do it in a hurry,"...
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RBI tweaks ECB norms to stem falling rupee
In an effort to stem rupee's downward spiral, the Reserve Bank of India (RBI) on Wednesday, directed Indian companies to bring back offshore funds, raised through external commercial borrowings (ECBs) for the purpose of domestic business expenditure. Those funds need to be parked with Indian banks......
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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
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