Exchange rate is always on our radar: Subbarao

Dr. D. Subbarao, Governor, Reserve Bank of India flanked by Mr. R. Gopalan (left), Secretary, Department of Economic Affairs, Govt. of India and Dr. K.C. Chakrabarty, Deputy Governor (right) at the Central Board meet of RBI in Kolkata on Thursday. Dr. Subir Gokarn, Deputy Governor of RBI are also seen

Kolkata, Dec. 8: Dr D. Subbarao, Governor, Reserve Bank of India, on Thursday said that some amount of rupee depreciation and oil prices have already been factored in RBI's assessment of seven per cent WPI (wholesale price index) inflation for March 2012. However, the apex bank will intervene in the forex market if there is a sharp movement in exchange rate which is likely to impair macroeconomic stability. “Rupee depreciation over the last three months is a result of developments outside India, particularly Europe. Exchange rate is always on our radar,” Dr Subbarao said at a press briefing after the RBI board meeting here on Thursday. The rupee has depreciated against the dollar by about 14 per cent since August this year. “Rupee's depreciation is adding to inflationary pressures,” Dr Subbarao said. The apex bank will come out with a ‘definitive statement' on the local currency at its forthcoming policy meeting on December 16. Rupee depreciation was mainly on account of low dollar inflows, and it calls for some specific measures by the policymakers, Dr Subbarao said. “We should attract more inflows into the country, and this the RBI has already done by way of adjusting the ceiling for External Commercial Borrowing, adjusting the maximum interest rates for non-resident Indian deposits, and increasing the limit for foreign institutional investors in sovereign and corporate debt, among others.” The apex bank, he said, would also take additional measures as and when required. Dr Subbarao said the RBI will take necessary steps to ease liquidity. The liquidity deficit in the banking system has widened beyond the central bank's guidance of plus/minus one per cent of net demand and time liabilities, amounting to about Rs 60,000 crore, thereby indicating that some banks were facing liquidity constraints.“The liquidity situation is being monitored on a daily basis. We will take all necessary steps to ease it. We are aware of the advance tax payment situation. We will take that into account while assessing the situation,” he said. Under the open market operations, the central bank repurchased bonds worth Rs 9,000 crore on Thursday to ease liquidity, in addition to bond buybacks of about Rs 15,000 crore over the previous two weeks. Responding to a query on the possibility of a cut in cash reserve ratio, he said, “Whatever we might decide on CRR or otherwise, you will have to wait for the mid-quarter statement.” Foreign direct investment in retail would help attract foreign investment and combat inflation, Dr Subbarao said. Food prices have responded to the good monsoon, the RBI Deputy Governor, Dr Subir Gokarn, said. “There are structural factors that are driving food inflation, particularly of protein items, and that is something we should be watchful of.” On the possibility of further rate hikes, Dr Subbarao said that further rate action will depend on some unanticipated developments.

HBL

Subbarao discusses upgradation of entrepreneur centres with Mamata

Kolkata, Dec 8 : The Governor of Reserve Bank of India (RBI), D. Subbarao met West Bengal Chief Minister, Mamata Banerjee regarding the upgradation of entrepreneur centres in the state in Kolkata on Wednesday. He was in Kolkata to attend a board meeting of RBI on Thursday. Speaking to the mediapersons, he said they discussed upgradation of centres for entrepreneurship development for the people of Bengal Subbarao also said that he had requested Banerjee for the allocation of land in the state to set up centres of training to impart entrepreneurship skills to the unemployed, since the current set of such institutions did not operate on a permanent basis. "There are 19 centres functioning in West Bengal, but not all of them are on a permanent basis. The scheme is, the Government of India gives one crore rupees. The state government has to provide the land and the lead bank of the district sets up a centre for training local people in skills and entrepreneurship. I have requested the Chief Minister to provide land for the centres and she has kindly agreed to do that," said Subbarao. He also discussed the plans to bring banking system to nearly 7500 villages in the state. "There are about 7486 villages in West Bengal with a population of over 2000, which do not, as yet, have a bank branch. You are all aware that there is a national drive now, that by March 2012, which is about 4 months from now, all villages with population over 2000 must have access to banking," added Subbarao. However, the Reserve Bank Governor declined to comment on the financial health of West Bengal by saying the state chief minister had said that decisive and remedial steps have been taken in this regard.

http://www.newstrackindia.com/newsdetails/253811

RBI vows liquidity boosters

The Reserve Bank may consider liquidity enhancement measures, including a cut in the cash reserve ratio or statutory liquidity ratio for banks, in its forthcoming monetary policy review on December 16................

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Bengal balm and rider

Banks have agreed to lend more in Bengal but signalled that no dramatic improvements are possible in the absence of big industries. The assurance about more loans came a day after the RBI expressed concern over Bengal’s low credit-deposit ratio that suggested poor borrowings within the state..........

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Bengal needs to raise taxes: Subbarao

Kolkata, Dec 8 : RBI governor D Subbarao today said there is need to raise taxes and compress expenditure by the West Bengal government to improve its financial health. Asked to comment on the state's sagging financial health, Subbarao said, "there is a need to correct the fiscal situation generally by raising taxes and compress expenditure." He said that the quality of fiscal adjustment was important. Undesired expenditure should be cut more than desired expenditure. Subbarao who convened a special SLBC meeting with the state government and banks here said that the banks had told that the state's CD ratio would improve only when large corporate investment were made. Issues like increasing credit linkages to more SHGs and more distribution of kisan credit cards were also on the agenda. Subbarao said that state finance minister Amit Mitra had said that the state government would make efforts to release Rs 85 crore for recapitalisation of three RRBs in West Bengal. 

IBN Live

Zebra crossings, stop lines missing from junctions

Nagpur : Commuters and traffic cops have alleged that the traffic engineering wing of the Nagpur Municipal Corporation (NMC) is only concentrating on dressing up roads and squares leading to Vidhan Bhavan. The general feeling is that squares like Aakashwani, Morris College T- Point and RBI which are close to Vidhan Bhavan are being given preferential treatment…..

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FSDC Sub Committee meets in Kolkata

A meeting of the Sub-Committee of the Financial Stability Development Council (FSDC) was held today in Kolkata. Dr. D. Subbarao, Governor, Reserve Bank of India, chaired the meeting. The meeting was attended by Shri R. Gopalan, Secretary, Department of Economic Affairs; Dr. Kaushik Basu, Chief Economic Adviser, Ministry of Finance; Shri U. K. Sinha, Chairman, SEBI; Shri J. Hari Narayan, Chairman, IRDA; Shri Yogesh Agrawal, Chairman, PFRDA; Deputy Governors, RBI: Dr. K.C. Chakrabarty, Dr. Subir Gokarn, Shri Anand Sinha and Shri H.R. Khan; Executive Directors, RBI: Shri V.K.Sharma and Shri V. S. Das; and other officials. The Sub-Committee reviewed the recent developments in the global macroeconomic and financial sector scenario, focusing on issues relating to potential systemic risks for India. The Sub-Committee also discussed the stability issues emanating from the macroeconomic outlook, financial markets, financial institutions and financial market infrastructure. It deliberated on the draft Financial Stability Report (FSR) for December 2011, which is scheduled for release later this month. The functioning of the Technical Group for Financial Inclusion and Literacy and the Inter Regulatory Technical Group was also reviewed by the Sub-Committee.

Moneycontrol

Theatre to help revive 178-yr-old building that housed first RBI

.......To generate awareness of the history of the building, which housed the first Reserve Bank of India, the authorities are facilitating cultural exchanges like this theatre production.
“This production will gauge the interest of the people in such events and we will try and figure out if this can be made into a regular feature. We also plan to set up a modern storage of old British silver coins, etc, and make it available for public viewing, with some entry regulations. We have 8,000 such coins with us,”.......

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MFIs revamp business strategy

...The RBI's revision in provisioning norms and change in recognition of non-performing assets (to 90 days overdue from 180 days overdue) is unlikely to impact the profitability of the non-Andhra operations of Crisil-rated MFIs over the medium-term......

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RBI Licenses For All DCCBs

Andhra Pradesh is now the first state in the country to obtain banking licenses for all District Cooperative Central Banks (DCCBs), from the Reserve Bank of India (RBI), to carry on banking business. With the Srikakulam DCCB having obtained its banking license from RBI on 30 Nov 2011, all the DCCBs in the state have attained the status of licensed banks. Ever since the Andhra Pradesh State Cooperative Bank (APCOB) was issued its license during February 2010 itself, the entire network of rural cooperative banks has been operating on a licensed platform. The Committee on Financial Sector Assessment, under the Chairmanship of Dr. Rakesh Mohan, had recommended that there is a need to draw a roadmap to ensure that only licensed banks operate in the cooperative space.  In pursuance of this recommendation, the RBI, in its annual policy statement of April 2009, indicated that all unlicensed cooperative banks should strive to achieve licenses on or before March 2012, after which no unlicensed bank would be permitted to operate. The RBI also liberalised licensing norms, in order to facilitate the process. In Andhra Pradesh, out of 22 DCCBs, only 3 DCCBs were licensed at the time of the announcement of the RBI Annual Policy Statement for the year 2009-10. With planning and coordination between NABARD and cooperative banks, 19 DCCBs in the state have obtained licenses 4 months ahead of the target date set by RBI.While 5 DCCBs obtained licenses during 2009-10, as many as 8 DCCBs obtained licenses during 2010-11, and the remaining 6 DCCBs obtained licenses in 2011-12.

http://www.fullhyderabad.com/hyderabad-news/all-ap-district-cooperative-banks-dccbs-get-rbi-licenses-5672

Federal Bank on recruitment drive

Kerala-based Federal Bank Ltd will recruit close to 1,500 probationary officers over the next one-two years to make good the retirements that are likely to take place and to create resource to meet its expansion targets............

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PSU banks including UBI, PNB plan to hire 5 lakh as global banks cut jobs in India

…A whopping 44 lakh candidates will appear for a common recruitment test for clerks in public sector banks up to December 11 for about 50,000 jobs in the next four months, bank executives said. This is above the 10.5 lakh who took the examination for officers' posts recently….

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Priority sector lending to MFIs—need for adequate supervision

.........And without sufficient supervision, none of this will work on the ground and therefore, it is important for the RBI, DNBS and other concerned departments to take stock of what happened and why from a regulatory/supervisory standpoint. That is certainly some food for thought and let me reiterate that India is a great country for legislation but the implementation record is rather poor in many cases..............

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New savings A/c for higher interest: Is it wise?

...The prime motive behind the deregulation is to maintain the positive real interest rates in the economy. Deregulation will make the rate of interest on savings account flexible, market driven and in sync with the interest rate on other time deposits with banks with shorter maturities of upto 1 year. Furthermore, the large population living in rural and semi urban areas will benefit from this move. Unlike in metropolitan areas, where the savings bank account is held more for the day to day transaction purpose, in rural areas savings accounts is held primarily for saving and some even consider it as their investments. Hence deregulation is expected to make savings account more attractive in these areas and could have a positive impact on savings........

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How HDFC Bank Is Triumphing in India

Aditya Puri avoids e-mail, doesn’t carry a mobile phone or wear a watch, and goes home for lunch most days. That hasn’t stopped his HDFC Bank from becoming the country’s second-biggest lender by market value, after government-owned State Bank of India. “Banking is a simple business,” says Puri, 61, in an interview in his sparsely decorated office at the bank’s Mumbai headquarters, sunlight streaming onto the bare tiled floors……….

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The inflation hocus pocus

....The resort to incremental squeeze on interests, which succeeded during the Rangarajan regime at the RBI (1992-1997), has not worked. The past, it seems, is of limited utility in both the diagnosis and prognosis of economic problems......

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Compliance with Basel III norms will entail additional costs for banks: Subbarao

Dr. D. Subbarao, Governor, RBI interacts with media alongwith the West Bengal Finance Minister, Mr Amit Mitra after a brief meeting with the Cheif Minister, Mamata Banerjee on Wednesday

Kolkata, Dec. 7: The RBI Governor, Dr D. Subbarao, on Wednesday said that Indian banks will have to incur additional costs to build capital buffers to comply with Basel III rules. Though the Indian banking sector was comfortably placed to implement Basel III regulations, some banks might need additional capital, Dr Subbarao said at a meeting with bankers here. “On aggregate, banks are comfortably placed in terms of capital adequacy, but a few individual banks may fall short due to implementation of Basel III.” The Basel III rules, formulated by the Basel Committee on Banking Supervision following the financial crisis of 2008-09, require banks to shore up their capital and liquidity buffers, and will be implemented in phases from 2013. The implementation of Basel III will lead to an increased cost of borrowing for Indian companies both in the domestic and overseas markets, Dr Subbarao said. Banks should look at trimming the interest rates on advances and hiking those on deposits in order to achieve a double-digit growth. “For double digit growth we need more deposits, and this (more deposits will come in) happen if banks provide attractive interest rates on deposits,” he pointed out. The demand for credit is set to rise, he added.

Dr Subir Gokarn, Deputy Governor, Reserve Bank of India, said that the apex bank would not want to compromise its monetary stance to manage liquidity in the system, thereby hinting that there could be little possibility of a cut in the cash reserve ratio of banks. “The cash reserve ratio is not just a liquidity tool, but also a monetary signal and the RBI will do “whatever possible” to manage liquidity, but within the confines of its monetary policy,” Dr Gokarn said at the bankers' meeting.  Talking about the rupee volatility, Dr Gokarn said, “The RBI's steps to increase inflows have helped cap the rupee movement.”  The central bank did not have a view on the value of rupee, he said. The RBI has not used large amount of reserves to manage currency depreciation. “Our approach has been non-interventionist,” he added. 

HBL

RBI rules out easing of WMA norms for Bengal

The RBI Governor, Dr D. Subbarao, on Wednesday ruled out giving any special relaxation to the West Bengal government for borrowing through the ways and means advances (WMA).  “No exception will be made in respect to ways and means advances (WMA) to any one State,” Dr Subbarao told reporters following a meeting with the Chief Minister, Ms Mamata Banerjee, at the Writers' Buildings here today. West Bengal is one of the most indebted States in the country, with an accumulated debt of over Rs 2 lakh crore. Replying to a query regarding the State's financial health, he said, “I am told by the State Chief Minister and the Finance Minister that efforts are being made to improve the situation. RBI will extend all possible support with available instruments under its disposal.” According to the RBI Governor, West Bengal's credit-deposit ratio which stands at 62 per cent is much below the national average of 74 per cent. The State government, he said, should take steps to increase the demand for loans from the agriculture and manufacturing sectors.Schemes for increasing tax revenue from small and medium enterprises (SMEs) should also be taken up by the State Government. For this necessary help should be provided to the six-lakh-odd SMEs of the State, he added. Talking about recapitalisation of the three regional rural banks (RRBs) in the state, Dr. Subbarao said: “We have requested the chief minister to provide Rs 83 crore recapitalisation support for the three regional rural banks in the state. Subsequently, the Centre will provide an additional Rs 235 crore.” According to Dr Subbarao, because of lack of infrastructure in different parts of the State, only about 4000 villages (with more than 2000 population) have been vested with banking facilities. This he said is much below the target of 7,486 villages that had to be vested by March 2012.

HBL

RBI organises awareness programme on MSME Schemes for young entrepreneurs

GANGTOK, 05 Dec: Reserve Bank of India (RBI), Gangtok Office organised a sensitisation cum awareness programme on Micro, Small and Medium Enterprises (MSMEs) Schemes for the young entrepreneurs of Sikkim on 02 Dec at the Zilla Panchayat Bhawan, Gangtok. The programme was Chaired by Special Secretary, Commerce & Industries Department, PT Euthenpa and attended by many prospective entrepreneurs to derive benefit from the various agencies which were present at the venue, informs a press release. Speaking on the occasion Mr Euthenpa urged the prospective entrepreneurs to carry out market research before starting any economic activity and assured full assistance from his Department to the participants. He also motivated them to take up those ventures which were viable and sustainable. Appreciating the initiative of the RBI he expressed confidence that the youth of Sikkim will definitely benefit from such awareness programmes and urged RBI to conduct such awareness programmes in all the districts of the State, the release mentions. The programme was also addressed by AGM, RBI, Gangtok, Anil Kumar Yadav, who informed the participants about the RBI guidelines towards extending finance in starting MSME units. He also said that since MSMEs are the backbone of the Indian economy, they deserve full support and assistance from Government Departments and finance from banks & Financial Institutions (FIs) as a priority sector. He further added that MSMEs are facing problems due to non-availability of adequate and timely finance from the banking sector for enhancement of business activities, modernisation, expansion, diversification, joint ventures and international collaborations as well as to buy or import quality raw materials, latest machinery and equipments for production of quality products. He also said that many of them do not have sufficient information, contacts and awareness about how to obtain bank finance and other financial products and support available from Government and Financial Institutions. According to the release, it was an opportunity for prospective entrepreneurs to know more about various financial facilities for enhancement of business activities, export promotion, technology upgradation and expansion under MSMEs. The programme also highlighted the formalities involved in preparing business plans, project reports and financial documents and performance results to obtain more financial support. Representatives from NeDFI, SIDBI, MSME-DI, DIC, banks and other agencies involved in MSME activities also attended the programme. An open house session was also organised to clear doubts on many aspects of starting new economic ventures, the release adds.

http://sikkimnow.blogspot.com/2011/12/rbi-organises-awareness-programme-on.html#!/2011/12/rbi-organises-awareness-programme-on.html

Obituary

Smt.KAMALA SESHADRI (86) wife of Late R.K.Seshadri (former Deputy Governor, RBI) passed away on 6 Dec. Ph:044-65510104. Survived by Indira and R.S.Krishnan. Her eyes live on through Sankara Nethralaya; Body donated to Sri Ramachandra Medical Institute. 

The Hindu

CRR is a monetary policy signal: Subir Gokarn



CRR is not just a liquidity tool but is also a monetary policy signal and we are as of now still in a situation where inflationary pressures are high, said Subir Gokarn



Kolkata: The cash reserve ratio is not just a liquidity tool but a monetary policy signal, a deputy governor of the Reserve Bank of India (RBI) said on Wednesday amid market speculation it may lower the ratio in order to ease tight liquidity in the banking system. “CRR is not just a liquidity tool but is also a monetary policy signal and we are as of now still in a situation where inflationary pressures are high,” Subir Gokarn said. “Whether using an instrument that is part of monetary toolkit to address liquidity issue is certainly a debate which we have to engage in,” he said in an address to bankers. Cash reserve ratio is the proportion of deposits that banks need to set aside with the central bank as cash. The ratio now stands at 6%.

Mint

"Food Inflation : This Time It's Different"

Pune

CRR Cut Under Consideration, Says Gokarn

The Reserve Bank of India is considering a cut in cash reserve ratio, among other things, amid tight liquidity in the money market and rising demand for easing of monetary conditions to face economic slowdown, a senior central banker said.  “There is a lot of debate over CRR cut. It’s under consideration,” the Reserve Bank of India deputy governor Subir Gokarn told members of the Bankers’ Club at the Bengal Chamber of Commerce and Industry. “Excessive borrowing through LAF is beyond our comfort level. We do think excessive withdrawal from LAF may be stressful for banks even if it may not strain the system as a whole.” Demand for monetary action by RBI is gaining momentum despite the central bank’s stated stance of anti-inflation. With economic growth slowing and the threat of contagion from Europe strengthening, there is a belief that there could be some monetary action. Furthermore, the liquidity in the system is also under stress with banks borrowing substantially more from the Liquidity Adjustment Facility, or LAF, of RBI than what it desires.  Banks have been drawing an average of . 1 lakh crore daily from RBI since November 24 using the LAF window at 8.5% repo rate. The regulator’s comfort level is 1% of net demand and time liabilities, which is about . 60,000 crore. The above average borrowing has fuelled speculation that RBI may cut CRR by 50 basis points from 6% to inject liquidity into the system. RBI will announce its mid-quarter policy review on December 16.  But Gokarn maintained that CRR is a monetary tool — intended to exhibit its stance on direction of interest rate, rather than one to manage the liquidity in the system. “Whether using an instrument that is part of monetary toolkit to address liquidity issue is certainly a debate which we have to engage in,” Gokarn said. However, a section of the market feels that a relaxation in the reserve ratio may not be used as inflation is still quite high and there are no signs of moderation, although food prices have started showing signs of a decline after 38 months. Gokarn said RBI will continue to do more open market operations to inject liquidity and the third one is lined up on Thursday to release . 10,000 crore in the system.

ET

RBI tells banks to draw roadmap on financial inclusion

Mumbai: To ensure uniform services across the country, banks have been advised to draw a roadmap on setting up banking outlets in every unbanked village with a population of more than 2,000 by March 2012. Underscoring the importance of entrepreneurship, Reserve Bank of India (RBI) deputy governor KC Chakrabarty said at an awards ceremony that about 74,000 unbanked villages have been identified and allotted to various banks through state-level bankers committees (SLBCs). “As at the end of September 2011, as reported by the state-level bankers' committees of various states/Union Territories, banking outlets have been opened in 42,079 villages across the various states in the country. This comprises 1,127 branches, 39,998 business correspondents and 954 other modes like rural ATM mobile vans,” he added. The RBI has also advised banks to roll out financial inclusion plans (FIP), encouraging multiple channels of lending and enhancing the scope of the business correspondent model, improving credit delivery procedures in micro and small enterprise (MSE) sectors and encouraging adoption of ICT solutions in villages with a population of less than 2,000, he said. Chakrabarty also made a mention of the RBI’s efforts towards educating masses at the grassroots by setting up financial literacy-cum-credit counselling (FLCC) centres in all districts. As on March 2011, 252 FLCCs were set up in various states of the country, he added. Moreover, banks were advised to achieve a 20% year-on-year growth in credit to micro and small enterprises, he said, adding that the Reserve Bank is closely monitoring the achievement of targets by banks on a quarterly basis.  Based on the recommendations of a working Group, the limit for collateral-free loans to the MSE has been increased from the earlier  R5 lakh to R10 lakh and it has been made mandatory for banks, he said.

FE

World Disabled Day - No charity, but Financial Inclusion

......... There are certain procedural guidelines for banking facilities to visually impaired persons where the Reserve Bank of India (RBI) has advised banks that all banks must render the same services to a visually impaired person as it would to any other person without discrimination..............

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AP police plans tough measures against fake currency operators

Andhra Pradesh police, with the help of Enforcement Directorate (ED), is contemplating to attach properties of the members of the gangs involved in the circulation and smuggling of fake Indian currency notes in the state. "Circulation of fake Indian currency notes (FICN) in the state has become a challenge for the state police, but the situation is not so alarming. We wanted to take more deterrent measures to curb it," Inspector General of Police (CID) Jitender told PTI. "However, the situation was was definitely a challenge for us. Since the state police is vigilant and careful, a number of gangs involved in the circulation of FICN were detected in a year," the IGP said, adding that cases of fake currency of various denominations, at the face value of Rs one crore, were detected and reported annually. "We have written to the ED, which sought information about the FICN cases reported in the state. We have also asked the central agency to register cases under the Prevention of Money Laundering Act (PMLA) against those, who were allegedly involved in the circulation and smuggling of fake currency, as it is one of the scheduled offences, so that whatever properties they have purchased with this money, can be attached," he said. Besides the ED, the state police is also coordinating with the National Investigation Agency (NIA), Intelligence Bureau (IB) and Reserve Bank of India (RBI) to curb the circulation of fake currency in the state, he said. Most of the gang members, involved in the smuggling of fake currency, belonged to West Bengal, Jitender said, adding that the state police has already written to the Director General of Police and Additional DGP (CID) in that state to take concrete measures against the menace. 

MSN News

'Moral education must to weed out corruption'

The root cause of corruption, which has taken a shape of an epidemic in the country, is sharp deterioration in moral fibre of society, says DR Mehta, former deputy Governor of Reserve Bank of India and former chairman of SEBI.............

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Legitimacy for Microfinance in India: It’s Been a Long Time Coming…

... This bold step goes a long way towards giving the microfinance industry in India the legitimacy it has sought for more than a decade. Much of the credit for the RBI’s expediency in moving this forward should go to the team at MFIN and Sa-Dhan for their relentless efforts and representations to the RBI....

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MFIs concerned over raising funds post RBI guidelines

Even as most microfinance institutions (MFIs) have welcomed the Reserve Bank of India (RBI)'s move of bringing them under its direct regulation as a non-banking financial company (NBFC), the former have expressed concerns over meeting capital requirements prescribed in the guidelines issued by RBI. Last week, RBI had issued guidelines for NBFC-MFIs to have minimum net owned funds of Rs 5 crore, up from Rs 2 crore earlier and capital adequacy ratio (CAR) of 15 per cent, up from 12 per cent earlier. Players operational in Gujarat's microfinance space raised concerns stating the fund raising would become a major challenge in current times. According to industry insiders, the bitter experience of Andhra Pradesh crisis continued haunting the microfinance industry till recently and uncertainty looms over the investments through equity or bank finance. "It is a positive development for MFIs. But the situation has not changed much for this industry. Bringing equity investment looks difficult as the net capital requirements have been increased to Rs 5 crore," said Jayshree Vyas, managing director of Shree Mahila Sewa Sahakari Bank (Popularly known as Sewa Bank) in Ahmedabad. "After the Andhra Pradesh crisis, bringing funds has became a major concern for MFIs. However, post RBI guidelines some new MFIs may start operations, but at the same time several small NGOs having microfinance operations may close down, which may go against the objective of microfinancing," she added. However, Mathew Titus, executive director, Sa-dhan, a microfinance association based in New Delhi, maintained that it may create difficulty for MFIs to met the set CAR and net-owned capital requirements, but by putting them under NBFC category, the apex bank has brought under its gamut. "Raising capital for NBFC-MFIs should not be a problem, the bank finance would be available for them after RBI intervention. But the enforcement of the regulation should have been extended by a year or so, giving some room for the industry to come to normal from its past impact," said Titus adding that in the current situation, it would be difficult to raise capital through equity or bank finances. Meanwhile, many in the industry have set their eyes on microfinance bill to be tabled in the Parliament during ongoing winter session. The draft bill proposes a minimum equity capital of Rs 5 lakh and making it mandatory for MFIs to register with the RBI. "There are a few MFIs operational in Gujarat market, while giving them NBFC status would be an encouragement for new entrants. This is a more systematic approach decided by RBI for the MFIs in the country. However, we may also see some mergers and acquisitions of the smaller NGOs or MFIs with networth of about Rs 1-2 crore due to regulatory requirements," said Jayendra Patel, MD, Arman Financial Services Ltd, an Ahmedabad-based BSE-listed diversified MFI. According to Patel, the proposed microfinance bill may bring some relief for small MFIs. Many national players in microfinance have started scaling down their presence in Gujarat due to lukewarm response after the Andhra Pradesh crisis, he added.

BS

Government to bring bill in assembly to regulate financial companies

JAIPUR: The state government has speeded up the process to have a separate law to check cheatings by fly-by-night financial companies like the Gold Sukh Trade India Ltd. The provisions for such a law were discussed at a meeting between the senior officials of the state government and the Reserve Bank of India here on Wednesday. According to sources, the government was keen on drafting a regulatory bill that could be introduced in the assembly at its next session. The meeting on Wednesday was the first in this regard and a series of discussions involving the RBI officials and financial experts would follow in the coming days. Sources said the state government wanted either the RBI to amend its rules and regulations to check fraudulent financial companies, including the multi-level marketing firms that vanish with the investors' money, or let the state government to allow such companies to operate only at the recommendations of the district collectors. The RBI officials apparently objected to the second proposal saying it would amount to government stopping people from doing businesses. Provisions of the proposed Rajasthan Protection of Interests of Depositors (in financial establishment) Bill 2005 were discussed by principal secretary (home), GS Sandhu with the RBI officials and the police officers at the secretariat on Wednesday. In the past the bill was passed by the cabinet and sent to the Centre for its approval. The Centre, however, sent it back to the state government with some recommendations and since then the bill has been pending. With a serious of cheating cases surfacing all over the state in the past couple of days, the government has revived its efforts to get the bill signed into a law aimed at protecting the small investors. The Gold Sukh company, a multi-level marketing firm, alone is alleged to have duped a lakh of small investors all over the state. The government is even considering having a separate regulatory body for the non-banking financial firms that lure small investors with a promise to pay high returns. The government wants that such a regulatory body should have powers to take stringent action against financial institutions that fail to return the investor's deposit or interest. The bill under consideration has a provision to slap 10 years imprisonment along with a fine on the company owners who default in repayment of deposits. It allows seizure of establishment the company's assets. "One of the key features of the bill would be to define deposits. All transactions not coming under the banking or non-banking regulations will be included in the bill," a source, associated with the bill drafting, said. The definition of deposit is likely to cover any money deposited either in lump-sum or in instalments with a firm that assures an interest or a return of any kind or any service, said sources.

TOI

Himachal Pradesh: 174473 units financed by the Banks for different activities

Shimla: Smt. Rajwant Sandhu, Chief Secretary disclosed that the banks have disbursed loans amounting to Rs. 4496 crores to finance 174473 units for various activities under annual credit plan 2011-12 thereby surpassing the half yearly targets by 127 percent. She said that deposits with banks have increased by 24 percent over previous year reaching Rs. 45045 crores. She was presiding over the 122nd State level Bankers Committee meeting here today. Additional Chief Secretaries, Principal Secretaries, Secretaries, Heads of Departments, Shri S.K. Jindal, Director, Financial Services, Ministry of Finance, Govt. of India, Shri Jasbir Singh, Regional Director RBI, Shri Naresh Gupta, Chief General Manager NABARD attended the meeting. 

http://www.orissadiary.com/Shownews.asp?id=30672

Advances grow faster than deposits at UCBs in Gujarat

Advances by the urban cooperative banks (UCBs) in Gujarat have outperformed deposits during the financial year ended March 31, 2011. The advances grew by over 11 per cent over previous year, while deposits rose by close to 4.5 per cent on year-on-year basis.............

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Coop banks in state to go on one-day strike

Ahmedabad : Over 270 urban cooperative banks (UCBs) and district cooperative banks (DCBs) in Gujarat will observe a day's strike on Thursday, December 8, 2011, demanding income tax exemption for the cooperative banks, which was in force till 2006. Currently, cooperative banks are liable to pay a flat 30 per cent income tax on their earnings. The income tax waiver for cooperative banks, which was in force since independence, was removed in 2006-07 and the amendment to Finance Act, 2006 brought them under the income tax net by the-then congress-led UPA government. "Withdrawal of income tax exemption to cooperative banks has proved a major hurdle in the growth of this sector. Several representations have been made in this regard over a period of past five years at the finance minister level, president and ruling as well as opposition parties in the parliament. But no favourable outcome has come so far, hence we have called a strike of cooperative banks in Gujarat," said Jyotindra Mehta, president, GUCBF. The strike call will be observed by 18 DCBs, 270 UCBs and one state cooperative bank in Gujarat.

BS

RBI guidelines on MFI sector a positive: Crisil

New Delhi: The Reserve Bank's recent guidelines on the MFI sector will prove to be a positive and structurally strengthen it over the long run, ratings agency Crisil said Wednesday. "RBI's revision in provisioning norms and change in recognition of non-performing assets (to 90 days overdue from 180 days overdue) is unlikely to impact the profitability of the non-Andhra operations of Crisil-rated MFIs over the medium term," Crisil said in a study on the sector. RBI's recent guidelines have created a new category of non-banking financial companies (NBFCs) called NBFC-MFIs. The guidelines also highlight the need for transparency in interest rates, and address issues on multiple lending and coercive recovery. Key changes in the guidelines include revised provisioning norms and asset classification for NBFC-MFIs; relaxation in the minimum requirement for net owned funds, and in the minimum capital adequacy ratio requirement for 2011-12 for MFIs (micro-finance institutions) with sizeable exposure to Andhra Pradesh. Crisil said that a year after the Andhra Pradesh government promulgated its ordinance for (MFIs, leading to a major upheaval in the sector, the MFI players are redesigning their business models. Driven by moderation in growth, decline in profitability and subdued funding prospects in their core business, several MFIs are starting new ventures that are focused on secured asset classes or leveraging their branch networks to offer other retail products, it said. "While most of these new business initiatives are at an early stage, MFIs' ability to develop systems and processes, and scale up operations will shape their business risk profiles," Crisil Director Nagarajan Narasimhan said. The MFI sector's growth and profitability prospects have moderated since implementation of the Andhra ordinance, because of the subdued funding environment and operating challenges associated with regulatory restrictions on multiple lending, loan size, and end-use of loans. While there has been some regulatory clarity and selective lending by banks in the last few months, funding to the sector has not picked up. Crisil-rated MFIs have raised Rs 500 billion from banks and alternate sources in 2011-12 much lower than the pre- ordinance levels, it said. MFIs are, therefore, diversifying their business models by starting new ventures aimed at entering other asset classes mostly secured, such as loans against gold jewellery, housing and vehicle financing loans), Crisil said. Some MFIs have moderated their growth plans, while others have opted to leverage their branch network to offer retail products, it added. 

Zee News

The two values of domestic currency

... One of the myths is that while it is virtuous for the central bank to keep the domestic value of the currency stable—indeed, this is the primary function of central banking—the external value should be left for the market to decide..........

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Deteriorating risk profile

The Financial Stability and Development Council is due to meet in Kolkata this week to discuss the health of the Indian financial system. Also, the Reserve Bank of India (RBI) will release the latest edition of its financial stability report later this month. Both developments deserve to be watched closely......

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Remedy against bankrupt banks

....... Relying on various decisions of the apex court, the Commission held that where the law does not prescribe limitation, the court would import the concept of "reasonable time". If a bank cannot be revived within a reasonable time, the banking licence should be cancelled and the bank ordered to be wound up. The DICGC must pay the amount covered by the insurance as soon as such liquidation order is passed, without waiting for further orders from the liquidator. Otherwise, it would be torturous to the poor depositors who may have to wait for years for the cumbersome procedure whereby the liquidator crystallises the amounts due to each depositor.....

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Standardising Banks’ Most Important T&C

Since August, pre-payment penalty, or rather its waiver, has been in the news. First, it was due to the RBI-constituted Damodaran committee’s report recommending the abolition of this fee for floating-rate borrowers, even in the case of a switch to another lender. Then, the banking ombudsmen threw their weight behind this suggestion, and then the Reserve Bank of India decided to persuade banks to implement this proposal. A diktat from the National Housing Bank to housing finance companies to do away with the penalty followed. Add to this the fact that rising interest rates have prompted borrowers to fast-track pre-payments.  Thanks to the din around the pre-payment penalty, several other recommendations of banking ombudsmen have not received the attention they deserve. Apart from pre-payment charges, the ombudsmen identified nine other action points pertaining to customer services in banks. The first one is standardising the most important terms and conditions (MITC) for at least 10 important banking transactions. This will minimise any scope for confusion due to the various interpretations of these terms and conditions.  MITC is put up on all banks' and credit card issuers’ websites and customers would do well to read the fine print to avoid nasty surprises later, particularly in terms of charges and interest rates concerning credit card transactions. The next key suggestion relates to putting in place the infrastructure to enable a customer view information on all his/her banks accounts in a single window. Termed ‘One view’, it is already being offered by some banks. The ombudsmen have set a deadline of one year to complete the process, which will make it simpler for customers to keep track of all their deposits and loans across banks. The ombudsmen also put forth a suggestion to consider awarding monetary compensation to customers for any mental harassment (by bank officials). Another proposal that could bring relief to customers is the suggestion pertaining to ATM/ internet-based banking transactions. The ombudsmen have stated that in the event of any monetary dispute involving the customer and the bank, the onus should be on the latter to prove the customer’s negligence or mistake. They have also advocated compensating the customer for any loss arising out of non-authorised transactions.  Debit and credit card holders can also hope for insurance of ‘some reasonable amount’ to cover any fraudulent transactions made using their plastic money. The banking ombudsmen’s recommendations also seek to eliminate any ambiguity over the total interest payable. For, among the 10 action points is one on stating upfront the annualised all-in cost, that is, the annual effective rate, on loan accounts. With RBI’s last credit policy for this calendar year due this month, borrowers can hope to see at least some of these recommendations becoming final guidelines. 

ET

There is not much of a liquidity pressure in system: Anjan Barua, SBI

.... First of all, I do not expect the Reserve Bank to cut the CRR nor do anything with SLR at this moment. Though, newspaper reports and TV Channels have been reporting that there is a liquidity strain in the market. But what we have seen of recent days and in the recent weeks there is not much of a liquidity pressure in the system as of now for Reserve Bank to cut the CRR or even tinker with SLR at this moment..........

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The case for RBI intervention in today's forex market

.....The rupee's exchange rate is said to be market-determined, with the Reserve Bank of India (RBI) intervening only to prevent excess volatility. But if this is the regime, the situation should be ripe for intervention, because of recent excessive volatility............

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Underpricing of loans posing risks, say banks

...Product innovation in banking is good because it helps in hedging risks and staying profitable. Shyamala Gopinath, former Deputy Governor, Reserve Bank of India, said banks need to be careful while innovating. “At the heart of the 2008 financial crisis was a $60 trillion outstanding in derivatives and the value of the underlying bonds were only $6 trillion. Such kind of risks should be avoided. That is why in India we have introduced only the plain vanilla credit default swaps (CDS),” Gopinath said. In this case, a credit protection can be given only if the seller has the underlying security......

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India Telecom 2011 Offers Integrated Business Networking

...Another session focused on how the Mobile has become a Powerful tool for enabling financial services chaired by Mrs. Usha Thorat, former Deputy Governor, Reserve Bank of India & Director, Centre for Advanced Financial Research and Learning. The session witnessed eminent panelists like Mr. A. P. Hota, Managing Director and Chief Executive Officer, National Payments forum of India; Mr. R. Karthikeyan, Chief General Manager- Corporate Strategy & New Businesses, State Bank of India;........

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CBSE may include financial literacy programme in school curriculum

NEW DELHI: Indians may soon start getting schooled in financial literacy early on, with the Central Board of Secondary Education, or CBSE, readying to integrate it into already taught subjects such as moral science from the next academic year.  School children may therefore get to learn not just the intricacies of often complex financial products but also the associated moral hazards. They may learn about not just stock market trading, for instance, but also insider trading, which is as much an immoral act as a crime.  "The CBSE has agreed to include financial literacy programme as part of the curriculum," a finance ministry official told ET. The board has finalised the contours of the programme in association with the finance ministry and the financial regulators.  So far, the Reserve Bank of India, market regulator Sebi and the Central Board of Direct Taxes had been separately working on financial literacy programmes targeted at different sets of individuals. "Financial literacy is crucial for financial inclusion," the official said, adding that inclusion is not synonymous with merely opening a bank account but rather extends to access to stock market, insurance products and pension products.  The programme will aim at educating schoolchildren about such products without overly burdening their syllabi. It is therefore being designed in the form of modules that can include projects, quizzes, debates, essays and online tutorials to make it easier and interesting for the young students. It will highlight the pitfalls of financial investment, including misselling of financial products. Finance minister Pranab Mukherjee had stressed on the need for such education in schools at an RBI-OECD seminar on financial literacy when he said it was a prerequisite to financial inclusion.  The minister had pointed out that the global economic meltdown happened partly because the ordinary citizens did not understand complex financial products, credit card debt or mortgages. "Financial markets now offer complex choices to consumers, but literacy is essential for consumers to make informed choices," Mukherjee had said.  Educationists endorse the need for providing financial literacy content in school curriculum in an interesting way to make children financially responsible from a very early age.  "If this is part of elective learning then it will allow children to get a better understanding of expenditure, savings and globalization," said Ameeta Mulla Wattal, principal Springdales School, Delhi.  The lack of financial literacy has meant that most financial regulators are having to run campaigns to make investors aware of the intricacies of investments and protect them from frauds.

ET

The Danger of a Decline in the Rupee

India may face its worst financial crisis in decades if it fails to stem a slide in the rupee, leaving the central bank with a difficult choice over how to make the best use of its limited reserves to maintain the confidence of foreign investors. Unlike most of its Asian peers, India routinely runs large current account and fiscal deficits. That means it must attract sufficient foreign money — namely dollars — to close the gap, and a weaker home currency makes that costlier. What makes the current situation so worrisome is that India is grappling with big internal and external economic threats simultaneously: Growth is slowing. Inflation remains high. Political paralysis has stymied domestic overhauls. The Reserve Bank of India, the central bank and last line of defense against a currency meltdown, has cautiously begun to support the rupee, but its firepower may be more limited than its $300 billion in reserves would suggest. Beyond India’s borders, Europe is the biggest worry. As its banks deleverage, investment money has flooded out of Indian markets. If European debt troubles worsen, India could be hit with a balance of payments crisis as severe as the one that forced a sharp devaluation in 1991. The rupee, which has dropped 16 percent in the past four months, got a reprieve last week after six of the world’s big central banks banded together to try to ease dollar funding strains, helping it break a four-week losing trend. But analysts widely expect the rupee to resume its slide. “The Indian currency will be the first casualty of a deterioration in the euro zone crisis,” said Rupa Rege Nitsure, chief economist at Bank of Baroda in Mumbai. If the European crisis deepens, the Indian trade deficit would widen even more rapidly, and India would have even more trouble attracting foreign capital. “Risk appetite will obviously collapse, and gradually the currency crisis is likely to take the shape of a balance of payments crisis,” Ms. Nitsure said. India’s current account deficit swelled to $14.1 billion in its fiscal first quarter, nearly triple the tally of the previous quarter. The full-year gap is expected to be around $54 billion. Its fiscal deficit hit $58.7 billion in the April-to-October period. In February, the government projected a deficit equal to 4.6 percent of gross domestic product for the fiscal year ending in March 2012, although the finance minister said Friday that it would be difficult to hit that target.  India relies heavily on portfolio inflows — foreign purchases of shares and bonds — as a means of covering its current account gap. Those flows are fickle.  Foreign portfolio investors have sold a net $50 million worth of equities so far in 2011, in sharp contrast to the $29 billion they invested in 2010, data from the Securities and Exchange Board of India’s Web site show. In November alone, foreign funds pulled $661 million out of Indian stocks. “The Indian economy is one of the most vulnerable to liquidity shocks in the region, not helped the least by deficits in its key balances,” said Radhika Rao, an economist with Forecast PTE in Singapore. The drop in portfolio inflows and the hefty current account and fiscal deficits have been the main factors behind the rupee’s decline. The Reserve Bank of India appears to have intervened to try to slow the decline. Between Oct. 28 and Nov. 25, reserves dropped by $16 billion to $304 billion, yet the rupee still fell by 7 percent during that period. Trading in rupee offshore forward contracts shows traders are betting on the rupee’s declining a further 1.7 percent over the next three months and 4.5 percent over a year. Many economists argue that the reserve bank has been too timid and deserves part of the blame for the rupee’s weakness. A deputy governor said Saturday that the central bank would use “all available instruments” to stem a downward spiral, but other officials have insisted that the bank avoid “undue” interventions, especially when the currency depreciation is caused by external forces. “The biggest mistake R.B.I. has made is that it has almost given an open invitation to speculators to short the rupee,” said Rajeev Malik, an economist with CLSA in Singapore, referring to the central bank. “It is really bizarre for any central bank to openly keep on saying that it will not intervene when there is already pressure on the currency to weaken and globally things are so uncertain.” Normally, higher interest rates bolster currencies, so the rupee’s weakness is all the more significant.  If the reserve bank decides to step in more aggressively, its maneuvering room is more limited than its reserves tally would suggest. After covering the current account deficit, short-term debt and foreign investment flows, there would be less than $20 billion left over.  J. Moses Harding, head of market and economic research at IndusInd Bank in Mumbai, said the reserve bank’s immediate concern would be stopping the spread of currency woes into the money market.  The Indian banking system already borrows more than $19 billion from the central bank to meet reserve requirements, so if the reserve bank moved to prop up the rupee, it would drain more liquidity out of an already tight market.  “It would be extremely difficult for R.B.I. and the government to arrest simultaneous downward pressures from equity, currency and money markets while struggling to address low growth and high inflation issues,” Mr. Harding said. That argues in favor of the reserve bank’s keeping its ammunition dry in case conditions worsen. If India is indeed heading for a balance of payments crisis like that seen in 1991, those reserves would be vital. Back then, India rapidly depleted its reserves, forcing a currency devaluation. But the risk is that the reserve bank will wait too long to act. “While it is important for R.B.I. to not shed its FX reserves unnecessarily, the approach of allowing such a massive pace of slide in the rupee could backfire,” Mr. Malik said.

The New York Times

Reliance Capital arm prepares for banking licence

Reliance Commercial Finance (RCF), the non-banking finance arm of Anil Ambani-led Reliance Capital, is gearing up to meet the required guidelines and norms that would be required for it to into turn a bank. With the government and the Reserve Bank of India expected to issue the final guidelines for new banking licenses shortly, many non-banking finance companies such as Reliance Capital, Shriram Capital and LIC Housing Finance are lining up to seek banking licence. Reliance Commercial Finance, which offers secured loans such as mortgages, business loans for SMEs, vehicle loans and infrastructure finance, will be the group’s likely candidate to turn into a bank, if the Reliance ADA Group acquires a banking licence, say experts in the banking sector. The company had a loan book size of Rs 13,927 crore as of September. “We need to wait for RBI’s final guidelines to see how it all pans out. The draft guidelines provide many options, including conversion. But we will wait and see how things work out before taking a call. From the draft guidelines perspective, we are fairly compliant,” said KV Srinivasan, CEO of Reliance Commercial Finance, said at a media event in Panaji, Goa. Unlike other NBFCs that treat loans that are 180 days past due date as bad loans, RCF considers loans that are 90 days past due as bad loans, akin to banks, he said. Like banks, the company is also preparing itself to meet IFRS accounting standards, much ahead of other NBFCs, Srinivasan said. “We are starting the journey towards IFRS. As and when the CA Institute initiates the guidelines, we should be prepared for it for our own purposes. When IFRS becomes the global standard for banks, we should be compliant. NB-FCs are expected to be IFRS-compliant by 2014-15,” he said. The draft guidelines for banking licences also specify that companies applying for banking licences should not derive 10 per cent or more of their income from stock trading activity. As of September 30, broking income constituted less than 10 per cent income of the parent company, Reliance Capital, he said.

FC

Proud of VITALINFO...............

  

Change policy stance

Growth slowing, inflation moderating: RBI cannot just pause

As December 16 approaches, the date the Reserve Bank of India (RBI) is due to release its mid-quarterly review of monetary policy, there are two recent numbers that loom ever larger. The first is 6.9 per cent. That is the rate at which the Indian economy grew in the quarter between July and September, according to figures the Central Statistical Organisation released last week; the dip below seven per cent could have been expected, but still served as a stiff reminder. The second is eight per cent, the most recent year-on-year estimate from the commerce ministry of how much food prices have been growing. After a long stretch of double-digit numbers for food inflation leading into November, its sharp decline – a percentage point a week since Diwali – should perhaps cause the RBI to look anew at its resolutely hawkish policy stance. The data are disputable, and rushed. Even so, some facts are unavoidable. First: growth is sputtering and slowing. On looking more closely at recent numbers, the picture just gets gloomier. The rate of increase in investment declined in the July-September quarter, indicating the danger of an imminent low-growth phase. Indeed, the eight infrastructure industries that drive growth – fertiliser, coal, electricity, petroleum refinery products, natural gas, crude oil, steel and cement – showed near-zero growth in the month of October. (In October 2010, they grew by 7.2 per cent.) The quarterly results for companies show that margins are squeezed across the board; and credit conditions appear to be tightening as well, with the off-take of non-food credit falling below the RBI’s own projections. (The RBI has promised to ensure that “there will be enough liquidity.”) The second undeniable fact is that food inflation appears to be easing. The major price pressures still visible are in vegetables and protein-rich foods like dairy products and eggs. As has been pointed out by many, including the prime minister’s office, a growing and aspirational India is likely to see an increasing demand for food items that were considered luxuries earlier. In short, this is not a phenomenon that can be easily managed from the demand side. Worldwide, commodity prices are also moderating — though the rupee’s weakness against the dollar means the effects of this moderation might not immediately be apparent domestically. There is, thus, growing pressure on the RBI to pause its tightening of monetary policy. Rates have been raised 12 times since March 2010. The argument was made at the time that, given the weakness of monetary policy in the shallow financial system India still has, in order to arrest inflationary pressure, rates needed to be hiked sharply. Presumably, the effects of the tightening are visible now. Yet, by that same argument, a mere pause may not be enough: The RBI needs to cut rates. It has attempted to attack inflationary expectations, and has succeeded to the extent to which it was capable; rate hikes have now reached the limit of their usefulness. Nor is there any great virtue in doing nothing, or just tinkering with the cash reserve ratio. In India, even more than elsewhere, monetary policy acts with a lag. If it is the consensus of the RBI that inflation will subside to manageable levels by March or April next year, then the danger signs from the growth numbers indicate that the time to change its policy stance is now. 

BS

Global currency, local politics

The Reserve Bank of India (RBI) has sent a very strong signal to the foreign exchange market that it is ready to deploy every tool in the book to defend the rupee if it sees a short-term risk of “accelerated downward spiral in the rupee’s exchange rate”. For good measure, RBI Deputy Governor Subir Gokarn also added that selective intervention in recent days should not be “misconstrued” as the central bank’s inability to deal with the challenge. “We do have instruments in the form of strategic capital controls and the capacity to enhance the supply of dollars in the market and will use them as and when appropriate,” Gokarn added. Indeed, this was a very clear and unambiguous stance taken by RBI, and this is what central banks are supposed to do. Over a fortnight ago, the same deputy governor had appeared to suggest, or at least the market read it as such, that RBI’s capacity to intervene in the market was limited, given the large volumes in the forex market. Second, he had said RBI will intervene only if there was volatility in the rupee’s movement against the dollar. Again, the market read this as a signal that a one-way movement of the rupee, without volatility, was acceptable to RBI. After all, volatility, by definition, is a sharp two-way movement that causes panic among the market players. This somewhat ambiguous communication of RBI had partially caused the sharp depreciation of the rupee, which had threatened to breach the R53 to a dollar mark in the latter half of November. Then everyone began asking, when would it cross the R55 to a dollar mark? This question is still on the minds of market players as well as businesses that have substantial dollar earnings or liabilities. RBI’s latest communication that it could intervene with strategic capital controls if “there is a short-term risk of accelerated downward spiral” will certainly help temporarily ward off speculators waiting on the sidelines to take out the R55 to a dollar level. However, don’t think that these speculators will go away any time soon. They had tasted blood when the rupee breached the first psychological mark of R50 to a dollar and were delighted when it crossed R52, and are now hoping it will breach R55 in the short term. RBI, with its latest communication that it will use strategic capital controls to defend the rupee, is ready for the big fight with these punters, most of whom are operating from outside of India. Even though it should not have been said publicly, there is some truth to the RBI deputy governor’s earlier assertion that the forex market volumes are too big right now for central banks to remain fully in control of. The cardinal rule of central banking is that such truths are not spoken of publicly. If the Federal Reserve or the European Central Bank started speaking the truth about the underlying risks in the global financial markets, there will be nobody left to play in the market! Indeed, the reality is no central bank is fully in control of events in the financial markets, especially in times such as these. The forex market is the most complex of them all. For instance, RBI is hardly in control of over 50% of the daily rupee trading that happens outside India’s jurisdiction. This happens out of Dubai, Singapore and other financial centres in Asia. It is called the non-deliverable forward (NDF) market that functions outside India where foreign banks and other global players are betting on the rupee simply because they see India as a dominant economic story. This trading in the rupee outside India has grown from some $3bn per day in 2007 to $45bn per day this year. It was only $19bn a day until January 2010. The price discovery for the rupee’s exchange rate is substantially happening outside India now. This cannot be avoided because foreigners want to take a bet on the rupee. Some years ago, a big Japanese bank agreed to denominate in rupees the repayment of a yen loan borrowed by a Latin American entity. Our finance ministry protested but could do nothing because the rupee rate was being used outside India’s jurisdiction! The larger point, therefore, is our political class must realise that India is already a global entity. Therefore, the sudden burst of nationalist/protectionist fervour, as displayed in the opposition to FDI in retail, will be highly counter-productive. Globalisation cannot be a half-way house. A fast-growing Indian economy will need net capital inflows of up to 3% of GDP to fill its current account gap for some years. This means India will require an average of about $100bn of net capital inflows in the next decade or so. A good part of this has to be FDI because FII inflows can be fickle in certain years. This year, foreign portfolio investments in the stock markets are next to nothing. In normal years, they are at $20bn-plus levels. Foreign borrowing by corporates, another source of dollar inflows, is also shaky because European banks are shrinking their balance sheets across the board. About 40% of dollar loans accessed by Indian businesses  traditionally come through European banks, which are now in trouble. So, today FDI is the only stable source of foreign capital as global corporations are sitting on cash reserves of over  $2 trillion, waiting to invest in emerging market assets. They will find buying  Indian assets very attractive from a long-term perspective, provided India is open to the idea of FDI in some currently restricted sectors. About 54mn square feet of organised retail space in China is foreign-owned. Just compare that with India’s total organised retail space of just about 30mn square feet. So, is China getting taken over by global MNCs? China has the shrewdness to get foreign capital on its own terms, a form of reverse colonisation, if you please. Our political class is still seeing the ghost of the East India Company! Mr Anna Hazare has also added his weight to this collective paranoia by saying global MNCs will take over India’s retail industry. At this rate, the exchange rate will surely sail past the R55 to a dollar mark, whatever RBI may say to the contrary. The political class cannot have the cake and eat it too. It cannot be xenophobic about foreign investment in retail and yet want the rupee to be strong and stable. The two just won’t go together. 

FE

On rejigging RBI policy

.............Once again, the Reserve Bank of India (RBI) faces the Hamletian dilemma of whether to be (tight) or not to be, as it undertakes its policy review. More than ever, the markets are anxiously awaiting some loosening of the stance. This is because the recent news on the economy, whether growth rates in GDP or exports or industrial production, has been somewhat discouraging. ..............

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Interest rate hike ineffective beyond a point, says govt

........ The demand for the RBI to press a pause button at its monetary review slated for December 16 on its rate hiking spree comes in the wake of India’s economic growth declining to a nine-quarter low of 6.9 per cent in the July-September period of this fiscal. Moreover, September saw a decline in the industrial growth to a two-year low of 1.9 per cent. Besides, increasing cost of credit has pulled down investment......

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Is India heading the eurozone way?

...........The Reserve Bank of India (RBI) should use this statement made by the ECB, which is saying that it is ready to act as the lender of last resort but only on the condition that governments show credible fiscal consolidation. The RBI has been consistently warning the government on its fiscal profligacy, as it impedes the process of monetary transmission......

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2012: Take the money and run

... The rally in the domestic stock markets last Friday, to take an example, was fuelled almost entirely by the rumour that the RBI was all set to cut the CRR that evening. Thus, 2012 is likely to be a year when financial markets will be caught between the crosswinds of easy liquidity and slowing growth....

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An assessment of recent macroeconomic developments



Keynote Address by Dr. Subir Gokarn, Deputy Governor, to the Opening Plenary session of Confederation of Indian Industry’s CFO Summit 2011 on December 3, 2011 in Mumbai



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This slowdown was coming

...High base effect and “moderation in investment demand” decelerated industrial growth. Yet, the RBI remained optimistic on the economy maintaining an 8 per cent average, in the new fiscal 2011-12......

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