RBI should avoid a cut in cash reserve ratio

The Reserve Bank of India (RBI) faces the classical central bank dilemma, with both growth and inflation in uncomfortable territories. While no rate action is expected in the upcoming December announcement, the monetary policy stance and the near-term guidance, if any, would be of sheer interest. Inflation has peaked — it would probably soften to less than 7.5 per cent by March, broadly in line with RBI’s projections. But it can stay fairly sticky thereafter — in an uncomfortably elevated range of 6.5-7.5 per cent for the major portion of 2012. The sharp deterioration in the growth trajectory would now increase the pressure on RBI to ease its policy stance. The central bank would possibly start facing the ‘behind the curve’ chatter again, this time on the easing front. Questions would now arise whether RBI over-tightened in the last few months. But an average headline inflation rate of around seven per cent is a clear deterrent against any rapid reversal in monetary policy stance — RBI would possibly hold the policy interest rate steady for the remaining months of 2011-12. Cuts in the repo rate could start from the April-June quarter. Of late, there has been widespread speculation of a cut in the cash reserve ratio (CRR). I feel that would be a sub-optimal policy move at the moment. It could be perceived as prematurely diluting RBI’s inflation-fighting stance and stoke inflationary expectations, which have started coming down. Rather, the continued use of open market operations (OMOs) to alleviate tightness in liquidity is a superior course of action. OMOs can be conducted at a measured pace, at the discretion of the central bank. OMOs would also help tame elevated bond yields — a CRR cut would not be able to achieve that in a sustained fashion. This is a particularly important consideration now, owing to strong possibilities of further overshooting of government borrowings in 2011-12.

Siddhartha Sanyal, Chief economist, Barclays Capital (BS)

The neurosis of currency

.................. Devaluation is not a big deal. The issue always would be the ability of a country to make growth and productivity a habit.

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RBI to issue notes with rupee symbol

Reserve Bank of India (RBI) will shortly issue Rs 1,000 and Rs 100 denomination currency notes incorporating the rupee symbol. However, it will be without the inset letter as in the case of the Mahatma Gandhi-2005 series which bears the signature of Dr D Subbarao, Governor of RBI. The design of these notes is similar in all respects, except for the rupee symbol. The old notes will continue to be legal tender.

DH

RBI prefers FDIs over short-term debt inflows to finance CAD

The Reserve Bank today said it prefers long-term foreign direct investment (FDI) inflows over short-term debts as the former is more stable in nature and also helps in financing the comparatively large current account deficit of the country. "We prefer long-term equity flow into the country in the form of FDIs. Debt flows, particularly short-term debt flows, are not the preferred form of money flows," deputy governor Subir Gokarn said here today. He was speaking at the 12th L K Jha memorial lecture titled 'Global financial flows, global imbalances and crises' which was delivered by Prof Maurice Obstfeld of the University of California at Berkeley. The function was presided over by the Governor Duvvuri Subbarao. The late Jha was the RBI governor from July 1967 to May 1970 and was also a member of the Brandt Commission that probed the financial crisis of the developing economies in 1983. Referring to the significance of maintaining a lower current account deficit (CAD), Gokarn said the country is far from any threshold of vulnerability on account of CAD, which currently stands at close to 3 percent of the GDP. He, however, said it is crucial to see how the CAD is financed to understand the possibility of instability for the economy and not the threshold per se. 

IBN Live

Now, a dose of pain therapy

Duvvuri Subbarao has successfully managed to choke industrial growth. The first set of numbers out this week shows that output at India's factories, mines and power plants in October 2011 actually contracted 5% from a year ago. Over April-October, industrial growth has slowed to a crawl; it is down to 3.5% from a healthy 8.7% in the same period of 2010. The central banker must draw considerable satisfaction that a series of 16 hikes since March 2010, which saw interest rates climb by 3.75 percentage points, has had its desired effect on deflating demand in the economy. What now? Mr Subbarao will, of course, be watching very closely the inflation numbers due on Wednesday before he crafts his monetary policy stance at a Reserve Bank of India review meeting slated for Friday. Wholesale inflation in October 2011 clocked 9.73%, the eleventh month running it has stayed above 9%, and unless there is a significant improvement here, the central banker will have little reason to lower his guard. Mr Subbarrao's pain therapy, of course, doesn't affect everyone equally, the scope of monetary policy being limited by administered interest rates on the one hand and a large parallel economy on the other. Agriculture and services, which between them contribute three-quarters of India's economic output, are maintaining their trend growth rates. Gross domestic product growth, as a result, has slowed to 6.9% in July-September 2011, from 8.4% a year ago. This is a concern, but nowhere in the league of the bloodbath on the factory floor. Companies are simply not putting up fresh capacity in a season of galloping interest rates and raw material prices. Production of equipment that goes into setting up new plants that churn out the stuff we eventually buy shrank 25.5% in October 2011, a precipitous fall from 21.1% growth in the same month a year earlier. Consumers, likewise, cut hire-purchase of durables like cars that has pulled down the rate of growth from 14.2% a year ago to a 0.3% decline in October 2011. Even when interest rates don't pinch much, Indians have stopped shopping: consumer non-durables like soaps contracted by 1.3% this October. India's famed consumption story is now in jeopardy. Mr Subbarrao's assessment of his own actions over the past year suggests that policymakers will now need to gear up to give growth a push. And he is relying on the government to assist in anchoring inflation expectations. Decisions on raising administered prices will raise the price line in the immediate future, but can tease suppressed inflation out of the system. Fiscal rectitude can help steer demand from a bloated administration to productive investments by companies and households. Fixing supply bottlenecks in agriculture and infrastructure, likewise, can ease structural inflation, for which monetary policy has no answers.  

HT

RBI to wait and watch for now

The Reserve Bank of India (RBI) is expected to wait a little longer before intervening to arrest the falling rupee. As the decline is driven by external factors, the regulator may give some more time for the currency to stabilise. “We have not reached that critical level which will prompt RBI to take direct actions,” said Anis Chakrabarty, chief economist and director, Deloitte Haskins & Sells. The regulator may however go for a cut in Cash Reserve Ratio to increase liquidity. “It is unlikely that RBI will take action to check the rupee as India does not have the comfort of a large forex reserve,” said Moses Harding, head- global markets group, IndusInd Bank. The outlook for the rupee remains bearish, and traders see its next support at R53.75. The rupee has fallen about 14% since the year began.

HT

Can RBI do anything to stop the rupee’s slide?

............. The RBI has been making token interventions in the market to prop up the rupee, mostly to shave some of the “speculative froth” in the currency markets, but experts said those efforts are unlikely to have any sustainable effect on reversing the rupee’s slide...............

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India Inc sends an SOS to RBI as rupee plunges to record lows

..... "Sure, it is a tough act as they (RBI) also have to worry about inflation and liquidity, but unless they step in and give confidence, the market will continue to move in the wrong direction,".............

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Politicians' curse versus the RBI

.... With the local myopic political brinkmanship hurting the economic outlook, the Reserve Bank of India (RBI) will continue to be the key focus for some policy-related clarity. This is unfair to the RBI, as it is not receiving the much-needed support from the government on fiscal matters.........

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Diving Re adds to RBI’s inflation, rate worries

Making the task of the Reserve Bank of India (RBI) to control inflation difficult, the rupee on Tuesday touched a record low for the second day in a row as both foreign and domestic investors snapped up dollars amidst worries about India’s cooling economy...........

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Policy out of focus

Apropos the editorial “Undone by policy” (December 13), I would add that declining inflation is a reflection of the consumer’s silent resistance. The common man, burdened with unprecedented inflation, has had to cut spending, even on essentials. Meanwhile, the government is bent on spending on unproductive popular schemes instead of focusing on development activities, such as infrastructure, hoping foreign direct investment (FDI) will fill the gap. Given the uncertain political situation and unabated corruption at all levels, foreigners will think twice before investing. It is high time the government shed its obsession with FDI and recast economic policy to suit our needs.

-  N Ramamurthy, Chennai (BS)

Wake up, Mr PM! Our economy is running on empty

............ The risk lingers that the policy mandarins may continue to deploy monetarist tools in the short term by requiring the RBI to lower interest rates even if the RBI isn’t convinced that the battle against inflation has been well and truly won. The risk of policy errors feeding the very real fears of stagflation remains high.

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Banks in Kerala see rush of NRE & NRO deposits

The depreciation of the Indian rupee over the past few weeks has helped Kerala-based banks like Federal bank, Dhanlaxmi Bank and South Indian Bank mop up their NRI (non-resident Indian) deposits............

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RBI’s sepia-tinted conflicts



Visitors at the Reserve Bank of India's 'Newsibition' which was inaugurated in Mumbai on Monday

Nothing has changed in the relationship between India’s central bank and the government since the inception of the Reserve Bank of India (RBI) in 1935, if the historical documents and news reports exhibited by RBI at its Mumbai office are anything to go by. The issues that created tussles between RBI and the finance ministry include nationalization of the central bank and major commercial banks in the country, the bank rate, and management of RBI’s investments. These are highlighted at the RBI exhibition, where most documents are sourced from newspapers. RBI has been hosting such shows across India to educate the public about its history and increase transparency in its functioning. Former RBI deputy governor Usha Thorat inaugurated the exhibition in Mumbai. The turbulence at the top began in 1936-37, shortly after the central bank became operational, between then governor Osborne Smith and deputy governor James B. Taylor, who had the backing of finance member of the Viceroy’s Council, James Grigg. The differences were on two critical issues—RBI’s autonomy and the monetary policy stand on controlling inflation vis-à-vis fiscal policy. Even today, RBI and the finance ministry have differences on such issues. The “turbulence” between Smith and his deputy—“two men with a strong and pugnacious personality” or “temperamental incompatibility”—according to former governor Chintaman Deshmukh, led to the governor’s resignation. Even today, the debate on many of these issues, notably the central bank’s autonomy, monetary policy stance on fighting inflation and deficit financing, continue to strain the relationship between RBI and the government, even though senior central bankers prefer to dub them as “creative tensions”. Former RBI Deputy Governor S.S Tarapore, who joined as a research officer in 1961, said the differences between the first RBI governor and the then finance member of the Viceroy’s Council was the most acrimonious in RBI’s history. “The English didn’t trust Osborne because he was Australian and not from the British civil services. They doubted him because he was considered to be close to the Indian nationalists. He became governor just because he had the support of the then Bank of England governor, Montagu Norman,” Tarapore said. Norman was Bank of England governor between 1920 and 1944. According to Tarapore, change is a natural process in the central bank, especially because the complexities the economy is facing have increased over time. “When I joined RBI in 1961, M3 was just Rs.3,000 crore and a Rs.1 crore loan was considered to be huge. Now, a Rs.1 crore loan is given out by individual bank branches daily,” he said. M3 is the broadest definition of money supply. RBI numbers show M3 in the banking system is currently at Rs.70.13 trillion. The exhibition has not not only attempted to chronicle the evolution of central banking, but also the nation’s history. For instance, it features events of currency notes being used as a means of propaganda against the British in 1942, with protestors defacing notes with slogans such as “Down with the Union Jack” and “Quit India”. The government soon passed the Legal Tender (Inscribed Notes) Ordinance that made such defaced notes with political propaganda illegal with immediate effect. One of the earlier hiccups or early-stage challenges RBI had to face was handling the failure of the Travancore National and Quilon Bank in the Travancore region and this highlighted the need to strengthen the regulatory framework of banking institutions. Another interesting moment in Indian banking history—the nationalization of 14 major banks by then Prime Minister Indira Gandhi—was front page news in The Hindu on 26 July 1969 along with another news item of Apollo 11 being placed in lunar orbit. RBI, the banker for banks and the government, was nationalized in 1946, after nationalization of the Bank of England. This was immediately followed by a reconstitution of its central and state boards. The public appearances of top central bank executives, which are keenly watched and scrutinized by the media today, was not a big event in the old days—probably a reason that prompted R.K. Hazari, a deputy governor between 1969 and 1977 to light a cigar even when presiding at one of the conferences of RBI staff to discuss the Tandon committee report on bank loan norms. A young Thorat is also seen in the photograph. The exhibition also depicts the evolution of Indian currency. RBI issued Rs.5 notes in January 1938, followed by Rs.10 in February, Rs.100 in March, and Rs.1,000 and Rs.10,000 in June that year. The first note issued by the Indian central bank carried the portrait of George VI and the signature of the second governor, Taylor. A note with a design of Edward VIII was never issued after signed by then governor Smith as the design had to be changed following his abdication.

Mint

'IIP data reflects weak global and domestic economic outlook'

Mumbai, Dec 12: Industrial output numbers for October, which contracted significantly by 5.1 percent, are reflective of the global and domestic economic outlook, former Deputy Governor of Reserve Bank Ms Usha Thorat said here on Monday. The industrial output shrunk by 5.1 percent in October after witnessing a sustained slowdown over the past few months, hitting a 34 month low. Factory production had grown 11.3 percent last October. “The general message is that the outlook internationally and nationally is very clearly reflected in the IIP numbers,” Ms Thorat, who now heads the Centre for Advanced Financial Research and Learning (Cafral) as director said after inaugurating RBI’s ‘Newsibition’ here. ’Newsbition’ is part of the central bank’s outreach and financial literacy effort in which RBI depicts the 76 years of its history. The evolution has been depicted through newspaper clippings and photographs. “It gives a glimpse of the spirit of the times and events not only as they happened but also how they were viewed by the public at large through media reports,” RBI said in a release. The exhibition, which will remain open from December 12 to January 14, is divided into nine sections representing different phases in the apex bank’s evolution. “In addition to the history of RBI, it also has panels and films on currency and its security features among others,” the release added.  

HBL

Long-term future of MFIs ‘not too rosy’: Report

New Delhi, Dec 12: There are some signs of easing of equity and loan fund flows into the microfinance sector in the second quarter of 2011-12, according to a State of the sector report-2011. The report, authored by Mr N. Srinivasan, formerly of Nabard (National Bank for Agriculture and Rural Development) and an independent consultant, said the immediate future holds out a promise that the sector will recover. But the long-term future appears not too rosy, in view of the various factors stacked against it, including competition from peer models and initiatives. Mr Srinivasan listed them out: stiff competition from banks through their business correspondent (BC) model; a restructured self-help programme (SHG); the National Rural Livelihood Mission (NRLM) that would use institutions of the poor to deliver financial services; and the impending rollout of mobile-based financial services. Even as they emerge from the current struggle for survival, the MFIs should rethink their long-term business objectives and competition strategies. The SHG II will hopefully remove the cobwebs and infuse fresh energy into members, groups and banks and supporting institutions. Achieving a convergence of SHG-Bank Linkage Programme (SBLP) with NRLM, the Mahatma Gandhi National Rural Employment Guarantee Programme (MGNREGS) and the financial inclusion programme is one of the tasks before Nabard. But, overall, the dark clouds seem to be clearing in the short-to-medium term, the state of the sector report said. With some regulation in place and more comprehensive regulation on the anvil, the MFIs will get an identity and will be able to operate under a set of known norms with certainty. The credit reference bureau becoming functional will deal with some issues in customer selection and examination of multiple lending. The MFIs need to get back to the drawing boards to look at their products and processes and find ways of complying with the regulatory guidelines. Building confidence in the minds of banks and funders does seem to be a harder task; the MFIs could do with some support from the Reserve Bank of India and the Centre in this. 

HBL

VITALINFO for one and all.............

Currency notes being used to spread Telangana sentiment



A 20-rupee currency note with a rubber stamp of 'Jai Telangana’ in English and Telugu in circulation in Vijayawada

Agitation for carving out a separate State of Telangana might not be vocal at this point of time and the leaders lying low, but they have found a new channel of spreading the demand by marking currency notes with ‘Jai Telangana' both in Telugu and English. Writing in the white space – watermark window – is punishable under Section 35A of the Banking Regulation Act 1949. But, the people supporting the demand seem to be not bothered about the punishment and were using currency notes as permanent pamphlets. A few such currency notes have made way into the system in Coastal Andhra too and a Rs.20 note was passed on by a vendor in Vijayawada recently. A Reserve Bank of India directive as part of its Clean Notes policy had said that: Banks shall do away with stapling of fresh, re-issuable, non-issuable note packets and instead secure them with paper bands; banks shall sort notes into issuables and non-issuables and issue only clean notes to public. Banks are supposed to tender soiled notes in unstapled condition to Reserve Bank of India in inward remittances through currency chests as per the directive, but many banks do not accept soiled notes. Banks have been asked to forthwith stop writing of any kind on watermark window of bank notes. People are scared to accept such notes now as they fear these notes may not be exchanged at the banks and they could be branded pro-Telangana in Andhra region.

HBL

After Rs 500, Rs 1000, circulation of counterfeit currency notes of Rs 20 on rise

....The governmental records prove that not only the fake currency notes of Rs 500 and Rs 1000 are posing a threat to the economy but even Rs 20 note is being circulated in Indian markets on a large scale............

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Banks complete 62% of financial inclusion target in 20 months

KOLKATA: The country's banking sector has reached out to 45,000 unbanked villages over the last 19-20 months, which is 62% of the target of extending banking services to 73,000 villages by March 2012. Although this means banks are up to a daunting task of achieving 38% of the remaining task in five months, union finance minister Pranab Mukherjee thinks the target will be met within the deadline.  The government has identified 73,000 villages which have more than 2,000 population for extending banking services in the first phase of its financial inclusion drive by March 2012.  In the eastern region, 23,352 villages has been identified and banks have covered around 12,000 villages. Banks are either opening brick and mortar branches or using business correspondets to reach out to unbanked villages. The minister had announced in his budget for 2010-11: "It has been decided to provide appropriate Banking facilities to habitations having population in excess of 2000 by March, 2012. It is also proposed to extend insurance and other services to the targeted beneficiaries. These services will be provided using the business correspondent and other models with appropriate technology back up. By this arrangement, it is proposed to cover 60,000 habitations."  In order to expand bank branches in rural areas, Reserve Bank of India allowed large commercial banks to open branches and administrative offices in tier 3 to tier 6 centres with population up to 49,999 freely. The banking regulator said that banks should open at least 25% of their new branches in a year in unbanked rural centres.

ET

Will RBI be forced to issue regulation on prepayment charges?

...... We know that the National Housing Bank (NHB) had stolen a march over its parent the Reserve Bank of India (RBI) in passing a regulation that prepayment penalty cannot be charged by housing finance companies (HFCs) in case of loans that are on a floating interest rate basis irrespective of the source of such repayment (even if it is by way of transfer of loan to another lender)............

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RBI issues guidelines for banks' investments in non-finance cos

Equity investment by a bank in a non-financial service company would be subject to a limit of 10 per cent of the company's paid-up capital or 10 per cent of the bank's paid-up capital and reserves, whichever is less, according to the Reserve Bank of India. In new guidelines for banks' investments in companies which are not subsidiaries and are not ‘financial services companies', the RBI said that for arriving at this 10 per cent limit, equity investments held under ‘Held for Trading' category would also be reckoned. Investments within the 10 per cent limit, irrespective of whether they are in the ‘Held for Trading' category or otherwise, would, however, not require the central bank's prior approval. The RBI issued the guidelines as it felt that it is possible for banks, directly or indirectly through their holdings in other entities, to exercise control on financial service companies or have significant influence over such companies and thus, engage in activities directly or indirectly not permitted to banks. Equity investments in any non-financial services company held by a bank; its subsidiaries, associates or joint ventures or entities directly or indirectly controlled by the bank; and bank managed mutual funds should in the aggregate not exceed 20 per cent of the investee company's paid-up capital. A bank's equity investments in subsidiaries and other entities that are engaged in financial service activities together with equity investments in entities engaged in non financial service activities should not exceed 20 per cent of the bank's paid-up share capital and reserves. In this case, the 20 per cent cap would not apply for investments classified under the ‘Held for Trading' category and which are not held beyond 90 days. Equity holding by a bank in excess of 10 per cent of non financial services investee company's paid-up capital would be permissible without RBI's prior approval (subject to the statutory limit of 30 per cent) if the additional acquisition is through restructuring/ corporate debt restructuring, or acquired by the bank to protect its interest on loans/investments made in a company. In such cases, the equity investment in excess of 10 per cent of an investee company's paid-up capital would be exempted from the 20 per cent limit. However, banks will have to submit to RBI a time bound action plan for disposal of such shares within a specified period. A bank's request for making investments in excess of 10 per cent of a non-financial services company's paid-up capital, but not exceeding 30 per cent, would be considered by RBI if the investee company is engaged in non-financial activities which are permitted to banks. The RBI said that banks should strictly observe the guidelines while investing in companies undertaking non-financial service activities. They should also carry out a review of their investments in non financial companies as also by subsidiaries and joint ventures, within three months. Wherever investments do not conform to the new policy guidelines, banks have to ensure that the investments are brought down to the prescribed limits and/or control or the exercise of significant influence is given up as the case may be or seek the RBI's approval.

HBL

CPI-M opposes move to lower interest rate on PF deposits

...Raising the issue during Zero Hour in the Rajya Sabha, Mr Tapan Kumar Sen (CPI-M) said the move is a “retrograde step” and asked as to why interest rates on employees’ lifetime savings are getting cut when RBI has increased interest rates.....

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RBI can, should and will intervene. But they do not have unlimited ammunition

....... RBI can, should and will intervene. But they do not have unlimited ammunition. At the best case, may be USD 20 bln. But we believe that policy makers should always communicate their willingness to use any potential tool available to them and should not vocally rule out any option. Even a verbal message can sometimes be enough to ward of speculators............

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Apex bank to keep status quo

Below-trend gross domestic product growth (GDP) in the second quarter of 2011-12 and a poor start to the third quarter — October IIP was a reminder of the pain during the financial crisis — confirm India's economic slowdown. Even anecdotal evidence indicates the downtrend in economic activity witnessed lately is unlikely to reverse soon. Indeed, even GDP growth below 6.5 per cent in a few of the upcoming quarters would not surprise many. Thus, it is little surprise that the market has turned to the Reserve Bank of India (RBI) for some action to kick-start the investment cycle, since the scope for fiscal measures is limited. While nobody expects a reduction in the repo rate this week, a lowering of the cash reserve ratio (CRR) is being talked about as the first line of defence in containing the slide in growth. The banking system's liquidity deficit is often used as an argument in favour of such a move. However, recent comments by RBI indicate the CRR is also a monetary policy tool, and it would signal a reversal of its monetary policy stance. With inflation in November still close to nine per cent, we believe RBI would not be in a hurry to signal a change in stance. We expect it to maintain status quo on December 16, even though growth concerns are likely to occupy more space in the policy statement. Slower growth should eventually squeeze out excess demand-side inflationary pressures, which RBI has long been trying to address. In terms of supporting-banking system liquidity, RBI is likely to continue to employ tactical tools such as buying government securities through open market operations. Thus, a reversal in monetary policy would most probably have to wait until 2012

Anubhuti Sahay, Senior economist, Standard Chartered Bank (BS)

Reserve Bank is on the cusp of a shift to easier money

... Mid-quarter reviews are not given as much importance as quarterly reviews but this month’s mid-quarter review has much significance for the markets going forward. The reason is that the RBI is likely to signal a shift in policy stance from bringing down inflationary expectations to improving growth expectations. The RBI is not likely to announce any major policy changes, but the signal it will send to the markets on future policy moves will be of importance...........

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Investors beware: the RBI is going to ensure a bumpy ride this week

...............“A cut in the CRR will signal the end of tight monetary policy, but the time for that is not appropriate as inflation, and particularly the non-food manufacturing inflation, a proxy of core inflation, continues to be high, way beyond the RBI’s comfort level. Besides, any infusion of liquidity at this juncture may tempt banks to punt on the rupee, which recently touched its lifetime low of 52.73 to a dollar,”......

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The lurking debt problem

...............Rumour has it that there is a standoff between the Ministry of Finance and the Reserve Bank of India over interest rate policy. Given the government's own failure, the central bank has been forced to take on the burden of combating inflation, leading to the sharp rise in interest rates. But since the Finance Ministry does not seem to like that, it is reportedly using the ECB lever to counter the impact of the RBI's intervention on the corporate sector. Whatever the drivers, the process is increasing external vulnerability.

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Undone by policy

......The RBI has raised rates 13 times since March 2010, while acknowledging the relative ineffectiveness of monetary policy in tackling cost-push inflation. Now, high rates have caused producers to put expansion and growth on hold. Clearly, there is need for a more open debate on the RBI’s tardiness in altering its policy stance. And, more immediately, the case for a rate cut to rescue growth strengthens daily..............

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Growth and inflation

The article “RBI confronted with multiple concerns” (Business Line, December 12.) rightly pointed out the issues before the RBI in the monetary policy review on December 16. So far, it was observed that to tame inflation, raising key rates resulted in rising lending rates by banks and reduction in growth rate. The question is: How far can we sacrifice growth to curb inflation and whether it is sustainable in the wake of reduction in foreign investment and, thereby, depreciation in the value of the rupee? Already, industrialists and loan borrowers are burdened with heavy interest charged by banks. The time has come for the RBI to begin the process of easing interest rates and check the continuous decline in the value of rupee. At the same time, the growth rate should not be allowed to fall further because of monetary policy decisions. A combination of growth and inflation of 7 per cent and 8 per cent would serve the economy well, provided the RBI eases interest rates, preferably starting with the ensuing monetary policy.

T. S. N. Rao (HBL)

Janata Seva Coop Bank fined Rs 5 lakh

BANGALORE: The Reserve Bank of India (RBI) has imposed a penalty of Rs 5 lakh on Janata Seva Cooperative Bank Limited, Bangalore, under sections relevant to Anti- Money ‘Laundering Guidelines’ violations. The RBI informed that it issued a show-cause notice to the bank, in response to which the bank is said to have submitted its side of the case. But after the hearing and other procedures, the RBI imposed a penalty of Rs 5 lakh on the Janata Seva Co-operative bank.

IBN Live

Consumer confidence in financial situation fell in Sept:Survey

The number of people who felt that their financial circumstances have improved fell to 56 per cent in September, from 59 per cent in June, as per the latest consumer survey by the Reserve Bank. However, optimism about an increase in future income, though high, has been sliding over the last four quarters, according to the sixth round of RBI''s ''Consumer Confidence Survey September 2011''. "Though more than half of the respondents felt that their household circucmstances have become better off, this proportion has declined as compared to June 2011," the survey said. About 18 per cent respondents reported that their household circumstances became worse off due to increase in price level. "This proportion has declined during the last four quarters, from 27.5 per cent in December 2010 to 17.7 per cent in September 2011," the RBI said. The survey had 5,400 respondents from six metropolitan cities -- New Delhi, Mumbai, Kolkata, Chennai, Bangalore and Hyderabad -- and was conducted in September this year. It found that optimism regarding increase in future income remain high, but has declined in absolute terms. A total of 66 per cent of respondents said they expect their incomes to rise during the next one year period, down from over 69 per cent who had the same view in June 2011. "About 71 per cent of the respondents reported increase in spending as compared with a year ago. This proportion in response to future spending is less at 66 per cent," the survey found. The study also found that nearly three-fourth of the respondents were of the view that the current interest rates are high from borrowers viewpoint. The degree of negative perceptions on price levels for now as well as in future are down marginally in September 2011 as compared with June 2011. "However, about 85 per cent of the respondents felt that prices would continue to increase during the next year," it said. RBI started conducting the quarterly survey on consumer confidence in 2010. According to it, the change in consumer confidence has the potential to affect real economic activities through the changes in business sentiments and the findings of the survey on confidence level of consumers can be of use for policy making purposes.

MSN News

Positive perceptions on current economic conditions decline: RBI survey

.“The change in consumer confidence has the potential to affect real economic activities through the changes in business sentiments. Thus, the current and expected confidence on economic and personal financial situations, are of particular relevance for policy purposes,” said the survey. ............

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Former RBI Deputy Governor Shyamala Gopinath joins Ernst & Young

MUMBAI: Shyamala Gopinath, former Deputy Governor of Reserve Bank of India, has joined the global advisory council of professional services firm Ernst & Young, signalling the growing significance of the Indian market for the Big Four accounting firms and underscoring the intention of the company to realign as per strict governance norms globally.  Gopinath has been appointed as an independent non-executive to the top governance body of the global assurance, tax, transaction and advisory leader, to advise on policy and strategy.  The appointment of one of India's leading former regulators on the global council of a professional services firm comes at a time when the European Union has suggested a draft law to split the world's top four audit firms to crack down on conflicts of interest and on shortcomings as highlighted by the recent financial crisis.  The Big Four typically refers to Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers. Gopinath is one of the five independent non-executives to be appointed by Ernst & Young. Earlier, in February 2011, the firm had appointed three independent non-executives. Concurrent with Gopinath's appointment, Ernst & Young also appointed Lim Hwee Hua, a former minister in the Prime Minister's office, government of Singapore, as an independent non-executive.  Ernst Young's global advisory council has the powers to approve appointments of key senior executives, including chairman, chief executive officer, and will also review their performances. The council shall also be involved in the management of reputational risks and other governance risks. Confirming her appointment, Gopinath said: "I am pleased to join Ernst & Young's Global Advisory Council as an independent non-executive member. This will provide me an opportunity to work together with some of the finest minds with a view to enhancing the role of professional services organisations."

ET 

Youth will determine India’s future: Subir Gokarn, Deputy Governor of RBI

This event has given an opportunity for the students to create a platform to build tomorrow’s CFOs and financial events like MONETA is the need of an hour,” he further  said. Think. Invest. Win, an annual event, organised by the students of R. A. Podar College of Commerce and Economics to drive industry interaction with academia and to create a platform to build tomorrow’s CFOs. Subir Gokarn, Deputy Governor of RBI was the Chief Guest for closing ceremony, while Yatrik Vin, Senior Vice-President – Finance & Accounts of NSE, J B Bhoria, Regional Director of RBI and Smt Supriya Patnaik, Chief General Manager of RBI were the guest of honour. While addressing students during the concluding day of annual fest, MONETA 2011 at R. A. Podar College of Commerce and Economics, here at Matunga, Subir Gokarn, Deputy Governor of RBI said that India’s future won’t simply be determined by powerful Chief Executing Officers and political leaders, but by its young people. “You are the future leaders, innovators, educators, entrepreneurs and organising such financial extravaganza like MONETA, enables students the ability and the financial acumen to handle various situations that may arise in the increasingly complex financial markets of today. This event has given an opportunity for the students to create a platform to build tomorrow’s CFOs and financial events like MONETA is the need of an hour,” he further said. At Podar, according to Dr s Shobana Vasudevan, Principle of R. A. Podar College of Commerce and Economics they strongly believe that real progress of India lies in development of rural population. “The key to this progress is connecting the villages with the modern world and bringing out the untapped potential of the larger mass. To maintain this gap, the students of Podar have resolved to impact financial literacy to those who do not have access to information but the urge to learn,” she stressed. Earlier, Subir Gokarn, Deputy Governor of RBI gave away a winner’s trophy to St Xaviers College of Arts and Commerce, Kolkata, who were declared winners of MONETA 2011. Bhopal Institute of Social Sciences were declared as the first runner-up, while B. K. Mazumdar Institute of Management, Ahmedabad were the second runner-up of MONETA 2011. According to Parth Popat, Chairman of MONETA 2011, Podar Moneta 2011 aspires to inspire students to cannily manage financial resources at their disposal through systematic planning, diligent application and judicial revision. “Our vision is to connect the theoretical knowledge of students to the real world and bring out potential financial wizards from amongst the student community, while our mission is to create a training ground for budding investors without being exposed to monetary loss,” he said. The event is sponsored by supported by National Stock Exchange (NSE), India Infoline Group, CNBC TV18, Entrepreneur, Woodland, DSP BlackRock Mutual Fund, Dena Bank, Super CFO, Close UP, Pond’s, Bright Outdoor Media Pvt Ltd and Croma.

http://www.indiainfoline.com/Markets/News/Youth-will-determine-Indias-future-Subir-Gokarn-Deputy-Governor-of-RBI/5308580200

Won an online lottery? Inform nodal agencies immediately

.......Several investors have been duped in the past and RBI has on several occasion cautioned the public not to fall prey. The latest RBI initiative goes a step further and provides a legal platform to lodge complaints regarding such incidents with ease. More complaints will help investigating authorities nab culprits........

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Bank password not so safe

Internet bank account hacking has now expanded to RBI’s much hyped One Time Password (OTP) security system. With few banks adopting OTP for online and credit card transactions, incidents of hacking have already been reported from Mumbai and Kolkata. Cyber security analysts say there are multiple risks involved in the OTP system. While a mobile service provider can reissue a SIM card, if not used for 3 months, a hacker can also avail of a duplicate sim card by producing fake identification documents. In one such case of hacking in Kolkata, the fraudsters have approached the mobile service provider with a fake voter’s ID of the bank customer and obtained a SIM card. The complainant filed under adjudication application. “The OTP has exposed the vulnerability of mobile phones in internet banking. While there is talk about poor ‘know your customer’ (KYC) procedure in the banking sector, we should not forget that KYC is equally weak in the mobile phone sector. In the Kolkata case, by the time the fraudster managed to obtain a duplicate SIM card, the original customer’s mobile phone was de-activated and even before he came to terms with the fault, the transaction had happened from his account,” cyber security adviser N.A. Vijayashankar said. In another case, the customer who had an online account went abroad and his attempts to de-register his account went in vain as the bank demanded his physical presence. Here again, his mobile number may get re-issued to a different customer by the mobile service provider. “Even if none of these compromises take place, hacking is still possible as fraudsters have been using malwares which these measures cannot thwart. Banks verify only login verification and not transaction verification. In the US, Federal Financial Institutions Examination Council (FFIEC) issued supplementary guidelines this June stating that OTP is vulnerable and explicitly states that transaction data verification should be done. Banks in our country can go for the next-generation technology which can guarantee both login and transaction verification”, said Mr Mohan Sundaram, who is CEO of firm Red Force Lab, which deals with cyber security solutions.

DC

ATMs to be made disabled-friendly

NEW DELHI: In what can be termed a much needed intervention for the differently abled , the office of the chief commissioner for persons with disabilities has written to the Department of Banking Operations and Development to make automated teller machines (ATMs) in the city disabled-friendly.  This move follows an RTI application and representation filed by a differentlyabled PhD scholar from Jawaharlal Nehru University, Kumar Nripendra Pathak, asking for making ATMs to be made barrier free for persons with disabilities.  In a letter dated December 5, 2012, the deputy chief commissioner in the office of the chief commissioner for persons with disabilities, under the Ministry for Social Justice and Empowerment has asked the banking operations and development department "to ensure that ATMs are made accessible to persons with disabilities in a time bound manner. Action taken in the matter may please be intimated to this office at the earliest".  Pathak said: "I noticed that for wheel-chair bound people and for people with other disabilities like me accessing ATMs are a tough ask. Most have no ramps and the height is also not right for people using wheel chairs. Simply put, we can't use the ATMs in their present state. Moreover , it is not safe to disclose our PIN number to anyone. I therefore filed an RTI with the Reserve Bank of India to find out what policies were in place for disabled persons. There I got to know of a Master Circular on Branch Authorisation of 2009 where banks were advised to provide all existing and future ATMs with ramps so that wheel chair users/ persons with disabilities can access them easily. The banks have not been adhering to the RBI directives since July 1, 2009.  The circular also asked the banks to make arrangements in such a way that the height of the ATM does not create an impediment in its use by a wheel chair user. Pathak in his representation pointed out that the directives are not being implemented by banks and cited the example of an ATM belonging to a national bank at the JNU campus . The letter from the office of the chief commissioner for persons with disabilities also cited Section 46 of the Persons with Disabilities Act, 1995 which provides for non discrimination against persons with disabilities.

TOI

Finance ministry pushes banks to fast-track bad loan recovery

MUMBAI: The finance ministry is pushing capital-strapped public sector banks to hasten recovery of bad loans to improve health, and has promised to fill vacancies at debt recovery tribunals (DRT) across the nation, partly responsible for inordinate delays in ending disputes.  "Needless to say that Rs 2 lakh crore (of bad loans) are a drag on the capital of banks," a bureaucrat from the finance ministry wrote to bank chairmen recently.  "All cases should be reviewed and... ensured that all cases pending above two years should be cleared by March 2012." Banks last year wrote off almost 10% of their gross bad loans as various recovery forums failed.  Recovery through DRTs fell to 28% of the total referred cases in 2011, from 32% ayear earlier, data from the Reserve Bank of India (RBI) shows.  Under the SARFAESI Act, it was a little better at 38%, compared with 30% in the same period previous year. Bankers had complained to the finance ministry that the DRT mechanism was not functioning efficiently, which in turn was making it difficult for them to recover dues. They had said the tribunals lacked presiding officers and recovery officers.

ET

Relax lending norms for loss-making units: Textiles Ministry to RBI

NEW DELHI: The Textiles Ministry has said it will urge the Reserve Bank to relax lending norms for the textile industry which has been hit by the volatility in raw material prices and slump in domestic demand. "Something needs to be done... something needs to be worked out regarding the asset classification (norms). Whether the Reserve Bank of India (RBI) let its guard down on some of the norms that is something we have to work very hard upon in this month," Textiles Secretary Rita Menon said. The Textiles Ministry has been following the matter with the RBI and the Finance Ministry after considering the industry's demand for resetting of bank loans worth Rs one lakh crore.

ET

RBI move, key numbers to decide stock market course

....... The other major economic reading - inflation - which is expected to fall to 9.04% in November from 9.73% in the previous month, may come as a relief to investors. Investors will closely watch the non-food component of the wholesale inflation data, which will be announced on Wednesday that is considered to be key to the outcome of RBI's rate-setting meet on Friday...........

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Big danger from a declining rupee for India

.... The Reserve Bank of India (RBI), the 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..............

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CRISIS OF COMPETENCE - Economic policy in India has lost its focus

..... The deputy chairman of the Planning Commission (I remember) responded that inflation was bad but nothing should be done that would adversely affect growth. So for two years he and the government left the control of inflation to the Reserve Bank of India. The RBI used monetary policies of higher interest rates and a squeeze on liquidity. The liquidity squeeze was a failure since large inflows of volatile foreign institutional investment and non-resident Indian deposits kept supplementing the rupee supply. Interest cuts did not dampen inflation..............

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ACTION UNLIKELY; DIRECTION TO CHANGE

...... Slowing growth and lower inflation will encourage RBI to change its policy direction, but it may not happen too soon as inflation will remain higher than the policy rate, possibly till December, and even though food inflation is coming down sharply, we don’t know yet the level of the non-food manufacturing inflation, a proxy for core inflation...........

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Govt must contain inflation

Not to speak of the US and the Eurozone nations, the Indian economy, too, seems to have been passing through a difficult phase. Double-digit inflation, the falling growth rate, disinterest of foreign investors in India, rapid depreciation of the rupee against the American dollar, the virtual failure of the monetary policy so far pursued by the RBI to curb the deteriorating trend and, above all, the surprisingly indifferent attitude of the government, conveniently shifting the blame for the current worrisome situation to the global environment, surely indicate that the country is headed for large-scale unemployment and general unrest. To stall the rapid depreciation of the rupee, the government could probably impose a complete ban on the import of gold at least for the time being. It could also reduce to some extent the import of crude oil and introduce rationing of petrol and diesel to be used by individual vehicle users. Automobile companies could be persuaded not to import components till the situation improved. Domestic investors should be guided to abstain from investing in foreign as well as domestic equities so far as the flight of foreign capital from the economy continues. The RBI could use a limited amount of foreign exchange to purchase the rupee in the open market. Serious efforts should be made to earn more and more dollars through the export of Indian goods to the markets other than the US and the Eurozone. To fight inflation, the government should possibly try to find ways and means to stabilise the prices of petroleum products (curtail duties). There is nothing wrong in the RBI’s monetary policy of raising the interest rate. Its effectiveness seems to have been hampered by the ill-conceived taxation policy. So long as the rate of inflation remains higher than the rate of interest on bank deposits, total interest earnings should logically be exempt from income tax. This would make bank deposits more attractive for those who otherwise prefer to invest in gold, silver, etc, or increase their expenditure on consumption. Higher bank deposits could certainly increase the credit creating capacity of commercial banks at a lower rate of interest for industry, a higher repo rate of the RBI notwithstanding. This could ultimately lead to a reduction in the cost of industrial output as also a higher economic growth rate.

D N Tandon, Panchkula (The Tribune)

Bankers see stable lending in near term

Pratip Chaudhuri, Chairman, State Bank of India

.....“I don’t expect the lending rates to go up. I would expect the RBI to address the issue of liquidity as the industry has seen liquidity pressure,’’ .........

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RBI confronted with multiple concerns

....While formulating its policy for the upcoming review on December 16, the central bank is confounded with two additional problems. One is to prevent the slide of the rupee and the other is to address the liquidity deficit in the system. While the decline in capital flows to India has led the depreciation of the currency, additional government borrowing has created a liquidity shortage. ...........

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Interest in bank stocks to perk up ahead of Credit Policy

Stocks from banking space will remain in focus ahead of the Reserve Bank of India's Monetary Policy, which is scheduled to be held on December 16. Market participants are expecting at least 0.25 percentage point cut in cash reserve ratio (CRR) to improve liquidity in the system. Such a move to lower CRR (the amount banks are required to keep with the RBI), will help banks to lend more. CRR has been left unchanged at 6 per cent since May 2010. Recently, China cut CRR by 50 basis points effective December 5. In the last one-year period, the BSE Bankex fell 21.89 per cent against the BSE Sensex's decline of 16.89 per cent and BSE-500's 19.11 per cent. If RBI follows China, not only banking stocks (due to higher loan offtake), the overall market will see an improvement in sentiment due to enhanced liquidity.

HBL

RBI’s Dec 16 policy review to take note of forex volatility

Bhubaneswar: The Reserve Bank of India (RBI) is hopeful that there would be some improvement in the foreign exchange volatility in coming days. “In view of the European Union Summit we are expecting that there would be some corrections in the value of rupee,” said RBI Deputy Governor Harun Rashid Khan. He said that the outcome of the summit would bring some comfort to the world economy.  “RBI policy review on December 16 would take note of the foreign exchange volatility besides the problem of inflation and the NPAs of banks,” Khan said on the sidelines of a regional seminar on securities market, organised by Bhubaneswar Stock Exchange, on Saturday. The deputy governor said that the euro zone crisis has its impact on the Indian economy. India used to get funds from European banks, he said and added, “Now that the European banks are in trouble, the funds flow to the country would be dried up.” The country's commerce is going to be affected as India's export to European countries is about 20 to 30% of its total exports.  There would flight of capital as the Foreign Financial Institutions (FIIs) would withdraw from the stock market. Commodity prices is going to be affected as the country is importing about 70 to 80% of its fuel requirements. The nation also is going to face the problem of contamination as India's global integration index has gone up over the years.  The seminar was addressed by Sebi executive director J Ranganayakulu, CSE MD & CEO Madhab Reddy, Nalco company secretary KN Ravindra, Bhubaneswar Stock Exchange chairman Vivek Pattanayak, and CEO Debraj Biswal. 

FE

As growth stalls, RBI will start cutting rates in early 2012

........ While the 6.9 percent figure was largely on expected lines given the signs of slowdown, all eyes are on Reserve Bank Governor Duvvuri Subbarao and Mint Road mandarins once again. The expectations are that, with investment slowing down, an unwinding of the interest rate cycle has now become an imperative. The Reserve Bank of India is to unveil its Mid-quarter Review of Monetary Policy on 16 December.........

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Noteworthy: Rs 500 minting up 17 fold in 10 yrs

There has been a fundamental change in what is sitting in an Indian's wallet: it's got more peach-pink and moss-green than ever before. The appetite for the big bills - Rs 1,000 and Rs 500 - is growing furiously. The figures tell the story. The number of Rs 500 notes minted across the country has grown almost 17 fold in the last decade, from 213 million pieces in 2000-2001 to 3,543 million pieces in 2009-10. The number of Rs 1,000 notes minted annually has grown nearly nine times, from 115 million in 2000-01 to 1,008 million in 2009-10. Today, there are fewer notes of Rs 20 and Rs 50, whether individually or collectively, than the total number of Rs 500 notes out there. These notes have quietly disappeared from automated teller machines with the value of every cash withdrawal rising. "Growth in the value of banknotes outpaced that of volume, reflecting the continuing compositional shift towards higher denomination banknotes, particularly 1,000 and 500," the RBI said in its annual report. RTI activist Manoranjan Roy, who sought information on the number of notes printed by the RBI, found that the big denomination notes are in huge demand. Economist Ajit Ranade tried to explain the demand pointing at the near double-digit inflation for the last two years. "The same lifestyle today requires 10-20% more money." he said. K Gayathri from the Institute of Social and Economic Change, Bangalore, added that the growing economy had put more money in people's hands, especially those from the manufacturing and service sectors. Consequently, spending too had gone up. Companies that run ATMs too say they are stocking more money in the machine trays as the "average ticket size" (simply put, the one time withdrawal) has ballooned from Rs 5,000 to Rs 7,000 approximately in the last three years. "Cost of living has gone up, the rise in our aspirations and desires push up demand for cash," said Mani Mamallan, chief marketing officer of C-H Technologies that manages ATMs for the State Bank of India. Currency in circulation is the largest component of reserve money and is primarily determined by demand. "There was acceleration in currency in circulation in 2010-11 due to increased demand due to economic growth, high inflation and low yield on deposits," said RBI officials. 

TOI

Obituary

Shri.Babul Sukumar passed away on 29-11-2011. He was Deputy General Manager in Central Pension Cell in B K C, Mumbai. He was born on 12-9-1953 and had served in several Offices of the Bank and in several centres. He was a truly genial and helpful Officer - especially at the time of getting the P J Gold Coins he was very helpful. He leaves behind hundreds of good friends in the Bank.

Shri.M.O.Jacob passed away in Trivandrum on December 5,2011. He was 85 years old. He retired on 31-12-1985. He held the post of the Secretary of the R B I Employees Association, Trivandrum for several decades.

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

At CMs’ meet, Munda flays delay in setting up of State Cooperative Bank

During a conference of the Union Finance Minister and Chief Ministers of eastern States in Kolkata on Saturday, Jharkhand Chief Minister Arjun Munda expressed concerns over the delay in establishing a State Cooperative Bank in the last 11 years. He complained that the two nodal agencies, RBI and NABARD, have not taken any step in this direction. Munda made two specific demands - the State Bank of India and Bank Of India must open a branch in Ranchi and these must be headed by a Chief General Manager and General Manager so that they can effectively coordinate with banks in Jharkhand for better financial inclusion. Munda said that due to absence of a State Cooperative Bank around 39 lakh farmers have been facing problems obtaining easy loans. “Only nine lakh farmers have a credit card while the rest are forced to approach moneylenders,” he said.  Munda requested Finance Minister Pranab Mukherjee to instruct public sector banks to provide loans to farmers assuring all support from the State Government. Stating that only 9,562 non-farmers in Jharkhand have been given loans, he said urgent steps must be taken by the Central Government in this regard.  Criticising the functioning of public sector banks in Jharkhand, Munda said that the banks are supposed to reserve at least one per cent of the total amount of loan to be given to poor under a differential rate of interest whereas it is merely 0.44 percent. He said that the percentage of loans given to weaker sections of society and the SC and ST has fallen from 8.7 per cent to 5.25 per cent during this fiscal year. He said most of the villages of Jharkhand having a minimum population of 2,000 should have been provided with banking facility under the financial inclusion scheme. “There are 1,541 such villages against which only 904 villages have been covered under the banking correspondence scheme. Even these are not working properly,” Munda said. 

The Pioneer