No non-event, this

In its mid-quarter monetary policy review on December 16, the Reserve Bank of India did not change the policy interest rates, the repo and the reverse repo rates. They remain unchanged at 8.5 per cent and 7.5 per cent, respectively. Nor did it tinker with the Cash Reserve Ratio, which stays at 6 per cent. The repo rate is the rate at which the RBI lends to banks while the reverse repo is the rate at which it takes money from banks, both against securities.The repo rate has emerged as the key reference rate. The reverse repo is pegged at one percentage point below it. Those significant changes were introduced in the annual policy statement of May 3, which also saw the introduction of the marginal standing facility whose rate is fixed at one percentage point above the repo rate. The absence of changes in the interest rates does not make the policy announcement a non-event. One tends to assume that headline making interest rate moves are the whole of monetary policy. Everything else does not seem to matter. It ought to be mentioned here that a monetary policy announcement does not cause the same level of excitement, which, say, a budget announcement does. Until recently, monetary policy issues were presumed to interest bankers (to whom it is generally communicated in the first instance) rather than the common man. To a large extent that was true: for the man on the street there was little to relate to interest rate or exchange rate policies. But the paradigm is surely but steadily changing. Ordinary citizens develop a vested interest — they may own a house bought with a bank loan or financed their children's education through an educational loan. Many, of course, travel abroad making them aware of the intricacies of foreign exchange transactions.  For them and many others, there is a growing need to understand the intricacies of official policies. The list can go on and on but suffice it to say that to the extent official policies are made more accessible, it is in everyone's interest. The latest mid-quarter review is one of the eight policy statements by the RBI in a year. The increased frequency — one every 45 days — helps the central bank keep in constant contact with the financial markets. It is also part of a process of demystifying official policies. However, one outcome flowing from the frequent announcements is that the monetary policy statements have become predictable. There are pros and cons in such an approach. On the plus side, there is greater transparency as well as continuity in policy. Important issues discussed just 45 days ago will not be forgotten. For instance, in the quarterly review (October 26), the RBI more than hinted of a soft monetary policy ahead when it said that that the possibility of a rate review in the December statement was ‘relatively low' and that henceforth the monetary policy will have more room for addressing short-term concerns. The flip side, of course, is that the central bank probably loses its surprise element when it wants to take the market participants by surprise. However, on December 15, the RBI sought to impose curbs on speculation in foreign exchange forward contracts as part of its gambit to stem the rupee's slide against the dollar. The rupee rebounded sharply on the next day. All these show that there is still room for surprise announcements in between policy dates. Effectively, the RBI had announced a change in its stance in the last policy announcement itself. On the eve of the latest statement, the consensus among money managers and others was that the RBI will maintain the status quo neither reduce the interest rates nor hike them. However, in the days prior to the policy announcement, there were strong arguments for and against a rate hike. Inflation continues to be a main worry, although the RBI is hopeful of containing it within its projected target of 7 per cent by March, 2012. On the other side, growth concerns have begun to occupy the centre stage. “While inflation remains on its projected trajectory, downside risks to growth have clearly increased,'' the RBI said. “From this point on, monetary policy actions are likely to reverse the cycle, responding to the risks to growth,'' it said.

HBL

Stance of silence

Growth is in trouble, so the RBI should be wary of continued inaction

Reserve Bank of India, in its mid-quarter policy review, has unambiguously signalled a shifting of stance. Not only does the RBI reiterate in its statement that “further rake hikes may not be warranted”, but it concludes by saying that “from this point on, monetary policy actions are likely to reverse the cycle, responding to the risks to growth”. This is a welcome recognition from India's monetary authority of grim reality. There is little doubt that a tight money policy — which continued even as domestic policy making froze and the external environment turned the most uncertain it had been since the financial crisis of 2008 — has caused the India growth story to come to a screeching halt. The RBI was forced to acknowledge industrial production, particularly in capital goods, appears to be stumbling badly, reflecting the constraints on investment of a high interest regime. As the RBI says: the causes of the decline in growth can be traced to an “uncertain global environment, the cumulative impact of past monetary policy tightening and domestic policy uncertainties”. Admittedly, the RBI cannot be held responsible for either the concern radiating out across the financial markets from the euro zone, or for New Delhi's inability to push through growth-enhancing reform. Yet it has been clear for some time that growth and inflation are both slowing. A strongly-held belief that inflation expectations are not adjusting quickly enough has perhaps caused the central bank's reactions to be slower than most observers would like. Hopefully this approach will not continue in the crucial months and weeks to come. Inaction has also been on display in the foreign exchange market, in which speculators have been allowed to take one-way bets on the rupee — while the RBI seemed to think that, even though it was a regulator, its hands were tied. Some actions have now been taken to discourage speculation in the foreign exchange market. It remains to be seen if they will be enough. The primary focus of the RBI, however, should remain slowing growth and inflation. Food inflation is at its lowest point in four years; fuel prices are being slowly moved up and down by oil marketing companies; the growth slowdown itself is being reflected in pricing. While inflation may still be above the RBI's comfort zone, it is difficult to believe that rational observers still have inflationary expectations that are high enough to be problematic if a rate cut were to be announced. In the end, a central bank's job is essentially to manage expectations: if it does merely what is expected of it, it may not be seen to be in control. The RBI perhaps raised rates too slowly, and in stages that were too small to properly impact market participants. As it moves towards cutting rates, questions should be asked in Mint Road as to how to avoid that trap this time. The answer, perhaps, is to ensure that a reasonably-sized cut in rates is taken soon enough, which will be able to work its way through the system — and perhaps rescue some part of 2012-13 GDP growth.

BS

FDI policy makes messy entry into new year

...... The FDI policy framework entails four different agencies, and each can work in a silo impervious to the thinking in the other two. The first is the Reserve Bank of India (RBI), India’s central bank, which administers exchange controls under the only real “law” on the subject – the Foreign Exchange Management Act (FEMA). The RBI makes subordinate legislation in the form of regulations under FEMA, which should govern cross-border investments in and out of India. Yet, on a number of issues, the positions adopted by the RBI on day-to-day matters of exchange controls goes way beyond the basic scheme and purpose of exchange controls.................

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Banks agree to ease norms for customers

“Customers should have a choice. The committee held wide-ranging consultations with bankers and other people, and as a chairman, I am happy that some of these have been accepted.” IBA chairman Mallya confirmed that banks met RBI to discuss the Damodaran committee recommendations on Friday.

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Fake notes: Can’t ‘bank’ on banks

JAIPUR: Getting forged notes from ATM counters has now become a regular affair in the city. Mithya Singh, a college student got a fake Rs 500 note from her neighborhood ATM. She didn't realize it until a teller in a multinational bank at Raja Park rejected the note as fake.  A shocked Singh explained that she withdrew the money from the ATM of a nationalized bank just a few hours ago. The cashier, unmoved by the entreaties, cited the RBI guidelines and Singh had to forgo the money.  Singh's is not a one-off case, and with no provisions for compensation, it's the common man who has to bear the brunt. RBI (Reserve Bank of India) too feels that it's a problem with no solution in sight. "There is no policy on replacing the fake currency if it comes out from an ATM. It is difficult to prove that this note has come out of a particular teller machine," an RBI official said. People, therefore, try to get rid of such notes and often slip them with genuine ones to shopkeepers. This, in turn, leads to circulation of fake currency which largely remains unchecked.  "I received a fake Rs 500 note from an ATM. I did not check it while taking out the money. Later, when I realized that it was a fake it tried using it at several places. After a few failed attempts, I somehow managed to use it at a petrol pump," said Mukesh Goyal, a shopowner at Chandpole.  RBI has issued strict guidelines to all the banks to ensure unfit or forged notes are not circulated by the ATMs. However, in the absence of any compensation policy, banks seem to shortchange customers. "It is mandatory for every bank to instal a cash sorter machine to detect counterfeit notes in their currency chest. If the process is followed properly, chances of loading fake notes in the machine will be remote," the RBI official said.  Victims often have to bear harassment by the bank staff in case forged notes are detected.  "I went to a bank to deposit a sizeable amount of money which I had collected from various sources including ATMs. While counting, the cashier found that six notes were fake. He immediately seized the notes and later the bank also lodged an FIR. The cops quizzed me about the places from where I got the money. I was interrogated as if I had printed the fake notes. It was adding insult to the injury," said Raghuvansh Rai, who works with a private company at Sitapura. The banks, however, say it's difficult to identify genuine customers.  "If we start substituting the fake notes with an original, there will be no end to it. Also there is no mechanism to find from which ATM a note has been taken out. However, often we replace it if a person has maintained an account with us for the past 4-5 years. Banking business runs on trust and we realize its value," said Himanshi Dhawan, manager of a leading bank.

TOI

No provision to compensate ‘duped’ ATM customers

JAIPUR: RBI has issued strict guidelines to the banks so that dispensation of counterfeit notes thorough ATMs can be reduced, if not stopped. However, RBI does not have any provisions to compensate if ATMs dispense forged notes.  RBI has asked banks to ensure that only properly sorted and examined notes are fed into the ATM. All the banks with average daily transactions above Rs 50 lakh have been instructed to instal sorting machines.  A master circular issued by the RBI clearly mentions "the government of India and the national security council have taken a view that dispensation of counterfeit notes through the ATMs would be constructed as an attempt to circulate the counterfeit notes by the bank concerned."  ATMs in the country are replenished in two ways.  Either the bank concerned refills them or hires the cash in transit (CIT) companies, which fill the ATMs on behalf of the banks. In both cases, the banks have the authority to carry out adequate checks before loading. The banks also need to follow the proper procedure for hiring the companies.  "Banks have a major responsibility in ensuring that fake currency does not circulate in the market. For that, they need to adopt measures recommended by the RBI. If they follow the parameters seriously, the problem of ATMs dispensing fake notes can be tackled," an RBI official said.  However, not many banks are fulfilling their duties properly. An RBI official asserts, "Even after constant reminders, banks ignore our recommendations. It is a fact that banks do not process notes properly. Sorting machines are not duly maintained or updated regularly. There has to be a sense of responsibility and ownership in the banks to check the flow of counterfeit notes."  In the absence of any provisions in the law to compensate a customer who receives fake notes, banks easily get away.  "Every counterfeit note is a useless piece of paper. Banks are not liable to compensate the customers as there is no mechanism to establish that a forged note has come out from a particular ATM. Also banks are not making fake notes, so they are not liable to pay for it," the official said.  He added, "We can't take any action against banks unless we receive sufficient number of complaints against a particular ATM of a bank. However, we do conduct a surprise checks to ensure that banks are complying with all our guidelines.

TOI

Lock funds into 2- 3 yrs maturities - S.S.Tarapore

....The forward guidance offered by the RBI is worrisome as the guidance is clearly that the interest rate cycle would be reversed in January 2012. The qualification that a relaxation of policy in the next review would be contingent on the evolving situation would be lost in the din of the clamour for easing monetary policy. Now what should the common person do? The best he/ she could do is to quickly lock into longer maturity term deposits as banks could well lead the way by reducing the rates on longer- term deposits...........

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India needs to re-examine stand on Islamic banking: Experts

.......“Participatory banking in India includes cooperative banks, non-banking financial institutions and micro-credit programmes etc. We need to pitch Islamic banking within the framework of participatory banking in India which will involve profit and loss sharing arrangements with no fixed or predetermined interest rate and investment banking with no fixed or prefixed return rate...........

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Govt, RBI must find a lasting solution to tackle NPAs

..It is for the Government and the Reserve Bank to seriously view the NPA menace and introduce a solution perhaps acceptable to all stakeholders of banks other than borrowers. ..............

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SBI Cards to customise offers around spending patterns

.... “As consumerism grows, and as people become comfortable with plastic, the credit-card market is bound to grow. People are already very comfortable with plastic in terms of debit cards. The usage of credit cards probably would ride, in some sense, on that......

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RBI should look to bring in reforms on asset side of banks

....... "Though there have been many reforms in the banking space in the last two decades, issues related to long-term financing, rising complexity of financial products with globalisation along with various sources of funding still remain. Regulators have to address these issues for long-term stability of the sector,"...........

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Investment Awareness and Investors Meet 2011 held in Sikkim

E.E.Karthak

Gangtok, December 16, 2011: The Investment Awareness and Investors’ Meet 2011, was organised on 14th of December 2011 at Hotel Golden Pagoda, Gangtok with EE Karthak, GM, Reserve Bank of India as the Guest of Honor. The seminar covered the investment awareness on different market such as equity, commodities, debt, currencies and on different Mutual Funds available in the market and the current condition of Global Economy and the opportunities with the Indian Economy. Another main issue of the discussion was the role of RBI and different regulatory boards of India such as SEBI, Forward Market Commission and on the increasing inflation rate in different sectors resulting in rising commodity prices and Currency market volatility. The most appreciable and attractive part of the event was the speech of GM, RBI on the Investment Awareness and appeal the investors not to invest on any illegal funds or companies. It was also stressed that investors should check and read all the offer documents before making any investments. The programme was fully on general awareness rather than any sales.  The seminar greeted PK Pradhan, Chairmen, Citizen Urban Cooperative bank on the successful completion of 10 years of local cooperative bank Citizen Urban Cooperative bank as an inspiration for the youth. The event was hosted by Minjo Lama Pakhrin. It was organised by PCS Securities Limited and PCS Commodities Private Limited. 

http://isikkim.com/2011-12-investment-awareness-and-investors-meet-2011-held-in-sikkim-17-03/

Know your rights at the ATM

If your bank allows cash withdrawal, balance enquiry and payment of bills, all in one single login, then chances are high that your ATM transactions are less secure.................

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Real villain: RBI isn’t killing growth, government is

......We can all agree that the government hasn’t done a sterling job of managing the economy. But putting the entire onus of growth on the RBI by clamouring for an interest rate cut is unfair.....

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Hard money: It’s less Subbarao vs FM, more PMO vs Sonia

What’s really going on in monetary policy? Who is calling the shots, and why? Why is the Reserve Bank of India (RBI) still hawkish when the economy is dramatically slowing down and industrial growth has just crashed to negative territory in October?............

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Indian rupee being printed in Pakistan?

Economic warfare may be an old game the Germans started in the 30s, printing enemy country currencies to destroy their economy. Now, Indian currencies are printed in Pakistan. The report submitted by the government prior to the Asia-Pacific Group (APG) annual meeting on money laundering here in July had wanted a tab on Pakistan’s strategy to route the fake currencies into the country through Nepal, Bangladesh, UAE, Sri Lanka and South-East Asian countries like Thailand and Malaysia. It said roughly four out of every 1,000 currency notes in the country was fake. The latest analysis of trends of fake notes done by various probe agencies says that from January to July this year, seizures in Kerala and Lakshadweep were to the tune of just Rs2.1 lakh. There have been no major seizures and those through banking channels were much lower. Coastal area seizure was just worth Rs1.5 lakh. Besides migrant labourers who are agents, it is big game with money routed through UAE, especially to areas like Malappuram and Chavakkad where the centres work under the façade of clinics or treatment centres. Some visitors are carriers of fake notes. The state government has handed over cases of fake currency seizures to the National Investigation Agency. The NIA superintendent of police, Mr Sunil I, who heads the probe into the Rs8.9 lakh woth notes seized from Taliparambu in Kannur, says the agency was looking into various links in the case. The former Coast Guard director-general, Mr Prabhakar Paleri, says Kerala is generally a peaceful state and can be a safe destination for the landing of such notes that are sent out, especially from UAE.

Asian Age

Govt to strengthen security features of currency notes

To address the menace of counterfeit notes, the government plans to strengthen the security features of the Indian currency and will increase the risk factors for carriers of fake notes. "India is a victim of injection of fake currency in our economy. There are indications that fake currency is being injected from some of our neighbouring countries either as a source or as a route," Finance Minister Pranab Mukherjee said today. He was speaking at foundation stone laying ceremony of Bank Note Line at Security Paper Mill (SPM) here. At the same time, he said, the government is ensuring that the enforcement mechanism acts as deterrence to those who are involved in the circulation of fake currency. The efforts have been to increase the risk factors for carriers of fake currency in India, the minister said. "The effort of the government is to make security features of Indian currency so strong that it becomes highly difficult to fake," Mukherjee added. A committee of officials from Department Economic Affairs, Reserve Bank, Bhartiya Reserve Bank Note Mudran, Security Printing and Minting Corp and security agencies has been constituted for short listing of security features through global competitive bidding. Besides, a separate committee of RBI is finalising the new design of the next series of the Indian Bank Note. "It is expected that this two-prong strategy of the government to fight the menace of fake currency in India will yield substantial results in years to come," he said. Mukherjee said that efforts are also being made to indigenise the requirement of currency paper. "I am told that the procurement of one line costing about Rs 489 crore is in process, which will further strengthen our indigenous capacity," he added. Order for design, procurement, supply, installation and commissioning of CWBN paper line of 6000 MT has already been placed at a cost of about Rs 445 crore. The project is likely to be completed by October, 2013. "The completion of the project will reduce our dependence on foreign supplier. This will also reduce the possibility of diversion of papers supplied by foreign supplier to other destinations for the purposes of generating fake currency," Mukherjee said. He said the long term goal should be to meet the domestic requirement related to currency and subsequently cater to the demand of the international market. The requirement of specific type of inks used in currency printing is likely to be fully made by Bank Note Press, Dewas by upgrading the ink factory. The modernisation of the factory is under process, he added. A joint venture company called Bank Note Paper Mill India for the production of indigenous currency paper has been set up at Mysore with 50:50 equity participation by SPMCIL and Bhartiya Reserve Bank Note Mudran, a subsidiary of RBI. This paper mill will have capacity to produce 12,000 tonnes of currency paper annually. The planned currency paper production of JV combined with production at SPM, Hoshangabad will be able to produce about 21,000 MT of paper annually. This will meet about 90 per cent of the currency paper requirements by 2014 end. 

DNA

Uncertain phase ahead

Question mark over the government's ability to push through pending reforms

The last month of the first year of the new decade of this century has so far been very eventful for the country's economy. As the curtain is ready to drop for 2011, it is clear that India is headed for a difficult year ahead. Even as a cautious Reserve Bank of India kept the key rates unchanged, it is becoming increasingly clear that the economy has indeed hit the speed-breaker. The constant quibbling among political parties has only hurt the near and long-term cause of the economy. The ugly row that erupted in the wake of the Cabinet decision to allow up to 51 per cent FDI (foreign direct investment) in multi-brand retail saw Parliament go dysfunctional. In the wake of fierce opposition, the government had to backtrack and put the issue on backburner. The entire episode, however, had put a big question mark over the UPA Government's ability to push through the pending reform initiatives. This has already sent out negative signals to the global investing community. With the Vijay Mallya-headed Kingfisher Airlines facing severe financial crisis, it was widely speculated that the Centre would step in to free the skies by opening up FDI into the aviation sector. The inter-ministerial disagreement on this issue and also the wave of protests against the FDI in multi-brand retail have ensured that the skies are kept out of bound for the global investors.  Early this month, the government had to trim its growth forecast to 7.5 per cent for the fiscal. The Economic Survey, presented in February this year, had forecast a 9 per cent GDP growth. On the day when it lowered the GDP forecast, the government had also come out with a self-admission that a software-related error had inflated the country's export by $9 billion for the April-October period. More bad news was to follow subsequently. The government was stumped when the IIP number for October went into a negative trajectory. As if these were not enough, the rupee started getting under the nerves of the monetary and fiscal authorities. The depreciating rupee against the greenback has sent the calculations on the foreign trade front haywire. It was only after the rupee breached the 53-mark that the RBI stepped in to announce strong measures to curb speculations in forward contracts. The move had the desired effect with rupee moving up a little. It is against these all round negative signals that the Reserve Bank of India's mid-quarter monetary review was anticipated with great expectations. In the end, the apex bank preferred to take the cautious route and kept the key rates unchanged. Ironically, many a hurt participant in the economy lauded the status quo decision of the RBI. But the RBI drew predictable flak from the markets. The 30-share Bombay Sensitive Index (Sensex) tanked 345 points. The Nifty too went down. The RBI has indeed expressed its concerns over the growth. As 2011 is slowing moving into the pages of history, the country appears to be headed for uncertain phase in the coming year.

HBL

Audited bank books understate bad loans: RBI

Pointing to shortcomings in the quality of bank audits, the Reserve Bank of India (RBI) has said financial statements certified by accountants show lower non-performing assets than is actually the case. There is a difference between the levels of non-performing assets (NPAs) found during the course of supervisions (by RBI) and those in audited books of banks. Bad loans in certified statements are less, RBI Governor, D Subbarao, said on Saturday. Seeking an improvement on this front, Subbarao said, "We must identify where the systemic difference is coming from." He was addressing a conference organised by the Institute of Chartered Accountants of India (ICAI). Subbarao said accountants who sign bank books were RBI's "eyes and ears". He added the regulator expected them to send out early warning signals to assist the regulator in the supervisory process. A true and fair picture must be shown to shareholders, he said. The economic slowdown and rise in interest costs, owing to a rise of over 250 basis points in lending rates, have exerted pressure on the repayment capacity of retail and corporate borrowers. Gross NPAs of commercial banks rose to Rs 97,922 crore at end of March from Rs 84,698 crore a year ago, according to RBI data. On the demand to reduce branch audit work, he said relevant branch audits at public sector banks (PSBs) had significantly declined due to core banking facilities and centralised record keeping. The cost of audit of PSBs was significantly higher than the cost of auditing comparable private sector banks. However, ICAI has been resisted the move, as it would mean a reduction in work. ICAI's efforts in this regard are ill advised. Accountants should sharpen their skills in concurrent audits, rather than agitate for the retention of work which does not add value, Subbarao said. The profession had shied away from the responsibility of prevention and early detection of fraud, Subbarao said. The need for such a service exists, and if the profession did not fulfil that need, other agencies which could provide such services would displace auditors and deprive them of a potentially expanding opportunity, he added. The central bank governor also had a word of caution for accountants on monopoly in areas like signing financial statements, advising them against perpetuating their monopoly status. Accounting professionals were concerned about expanding career opportunities, owing to the institute's growing membership. The easy way out to expand opportunities would be to agitate for continuation of the monopoly position. However, this would be a mistake, Subbarao said, adding they should identify emerging opportunities and develop skills needed to exploit them.

BS

Freeing up NRI deposit rates will boost forex inflows, say bankers

The freeing up of interest rates on NRI (Non-Resident Indian) deposits by the Reserve Bank of India will attract more foreign currency, which in turn will strengthen the rupee, said bankers. The RBI, on Friday, deregulated the interest rates on Non-Resident (External) rupee (NRE) deposits and Ordinary Non-Resident (NRO) Accounts. The rates on these deposits should now be comparable those offered on domestic rupee deposits, said the RBI. As per RBI guidelines, banks can now determine their interest rates on both savings deposits and term deposits of one year and above maturity under NRE accounts and savings deposits under NRO accounts. In November, the RBI had increased the interest rates on NRE term deposits by 100 basis points and on FCNR (B) deposits by 25 basis points, thereby allowing banks to offer higher interest rates. Now the central bank has gone up a step further and de-regulated the interest rates altogether. As on October-end, the total NRE, NRO, FCNR deposits were at $51.975 billion, according to RBI data. According to Mr N. S. Venkatesh, Chief General Manager and head treasury, IDBI Bank, this move is welcome. It will bring in more foreign currency due to which the rupee will strengthen and imported inflation will come down. “As long as interest rates in India are higher than those in foreign countries, NRI deposits will be attractive. When huge amounts of money flow in, it is possible that the arbitrage could reduce. But until then we are likely to see good inflows,” Mr Venkatesh said. Currently, the interest rates on NRE deposits work out to less than 4 per cent. Post the deregulation, the interest rate would be higher, even after deducting the swap cost or the cost of converting the foreign currency into rupee.More money could flow into NRE deposits as the money is fully repatriable and there is no tax. So the effective return could work out to be fairly substantial, said an official from a public sector bank. How much interest banks will offer will depend on individual bank's requirement for funds and the scope for deployment. But for NRIs it is definitely an attractive investment at this point of time. “Even if someone borrows money overseas at LIBOR plus 100 basis points, pays a swap cost and covers it fully, the deposit will still fetch them a higher return,” explained the official. According to Mr Sumeet Vaid, CEO, Ffreedon Financial Planners, this is a right time for NRIs to invest in bank deposits as interest rates have peaked and the dollar-rupee exchange rate is in favour of the dollar. “It can't get better for NRIs in terms of the dollar's value and interest rates, as the RBI's own view says that interest rates have peaked,” he said.

HBL

RBI action halts rupee's free fall

............The coming weeks could see the rupee take support from the RBI's recent moves to shore it up. However, concerns about the domestic and international economy could translate into the dollar continuing as a safe haven for investors. This may restrict the rupee's gains.

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Govt should have defended rupee much earlier: Adi Godrej

...............The RBI should have intervened earlier than Thursday when it had announced a slew of measures to halt the rupee depreciation “by statements and policies,''..........

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“No major impact of the MoU signed with the RBI”

..... I can safely say that there has been no major impact of the MoU signed with the RBI. In fact they have released about Rs 2300 crore to the state government to pay off its debt incurred over the past many on account of the Over Draft (OD) from J&K bank........

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It's (still) the economy, stupid

In April 2008, Vikram Nimbalkar had everything going for him. He had just got married and, like him, his wife too had found a job in a technology outfit in the UK. By the end of the year, both were back in India, searching for a job as their employer asked them to leave in the wake of the worst financial crisis in several decades. It's been nearly three years now that the Nimbalkars haven't worked in an IT firm. Instead, they have moved to teaching at engineering colleges in Ghaziabad. While Vikram is in the process of switching over to a wellknown institute, the spate of bad news on the economy front has him worried. So are several others - from businessmen, who have now been complaining of deterioration for several months, to policymakers and politicians. In an interview, RBI deputy governor KC Chakrabarty told TOI that it is not clear whether we are out of the 2008 crisis or if it is the same crisis.

Times Crest

‘Financial literacy and inclusion go hand-in-hand’

.....“It is better to invest with a scheme/product that is overseen by regulators like the Reserve Bank of India (RBI), Insurance Regulatory and Development Authority (IRDA) or Securities and Exchange Board of India (SEBI). .........

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The clairvoyant

India Inc may have wanted Reserve Bank of India Governor D Subbarao to cut rates on Friday, but the fact is he has done his best in present tough scenario. In the face of letting go growth and focusing on inflation control, Subbarao, as his predecessor, has shown greater maturity in judging the ramifications of global as well as local events much earlier than others. When Y V Reddy was RBI Governor from 2003 till 2008, he received more brickbats than bouquets. But once the financial crisis hit the global economy and India weathered the storm with token damage, his percipient policies were celebrated, both in India and globally, as being ahead of the times. Today Subbarao stands in the same position. Strong rate-tightening steps taken by RBI over the past few quarters have badly impacted the investment and consumption cycles. The deteriorating global macro-economic environment also does not auger well for India’s economic growth. All this is reflected in the paltry GDP and IIP growth numbers of the past few months. The recent correction in global commodity prices would have been good news for commodity importers such as India, but a sharp depreciation in rupee at the same time prevented the transmission of any meaningful benefit to you and me. Despite the fact food inflation has come down substantially from its high of 9 per cent to 4.35 per cent in week ended December 3, the wholesale price index remains sticky above 9 per cent. That is not comforting. While the signal India Inc was looking for in the RBI policy remains mostly absent and focus on growth is yet to return, the fact remains that inflation is still a big concern for Subbarao. While food price inflation has dropped to a four-year low, a reversal in core inflation will be a major trigger for any reduction in policy rates. It is clear that Subbarao, a former finance secretary, is keeping all key rates unchanged till a clearer picture on inflation and inflationary expectations emerges. There could be lingering worries that any further hike in oil prices will undo the inflation calculation yet again. Considering that the risk of a fresh spurt in inflation remains high and the rupee remains under pressure, the timing and extent of further action by Subbarao will depend on a continuing assessment of how these factors shape up in the months ahead. With Subbarao standing pat, it is clear that RBI feels growth can be sacrificed but the rising cost of living has to be tamed immediately on a priority basis. While finance minister Pranab Mukherjee has hinted that the government now has a clear preference for rate reductions to support growth, Subbarao is his only choice to re-stimulate economic activity in the economy due to the lack of fiscal maneuverability. And Subbarao has every right to feel that inflationary expectations have not been fully controlled. The status quo on policy rates is largely in line with what the market had expected. RBI has reiterated that further rate hikes may not be warranted and a reversal of the rate cycle will be in line with the risk to growth. That is arguably the best line Subbarao could take and he has done so.

FC  

RBI right in pressing pause key – A.Seshan

The central bank has done well to keep the status quo rather than succumb to the pressure to reduce rates. The declining trend in inflation may turn out to be a false dawn, calling for a return to tightening measures. The RBI's neutral stance in its latest review — making a pause in its hard money policy — was somewhat predictable. In the first place, it had itself given an indication to that effect, ceteris paribus, on the last occasion. Secondly, a series of bad tidings for the economy tells us that the country is buffeted by problems both on domestic and external fronts, and cannot not bear with another dose of monetary tightening — despite inflation persisting above 9 per cent. The multiple whammies hitting the country are well known and need not be listed here. The only silver lining in the gathering clouds is the fall in the annual inflation rate from 9.73 per cent in October to 9.11 per cent in November; though small, it has provided a breather to the central bank. More importantly, the WPI for December 3, 2011, showed the rate of food inflation drop sharply to 4.35 per cent, reinforcing the trend seen for the previous week at 6.60 per cent. RBI can derive some satisfaction from the fact that its monetary policy actions are beginning to bear fruit on the prices front, though with a lag; its moves have led to a deceleration in the growth of aggregate demand. It could afford to shift its priority slightly towards promoting growth — not by loosening its grip on the flow of funds in the economy, but by not tightening it either. The RBI embarked on a dear money policy to help the economy experience a soft landing. Vested interests try to make it appear as though the country is facing a recession. A 7-7.5 per cent growth with an inflation rate of 7 per cent expected at the end of the year is something that many countries will be glad to achieve. The trends in monetary variables so far have been satisfactory from the point of view of an anti-inflationary approach. However, it remains to be seen whether the trend on the price front is going to continue. It is clear that with the expected non-realisation of revenue targets, ballooning expenditure and the lowering of growth estimates, the fiscal deficit will exceed 4.6 per cent of GDP envisaged in the budget. The only question is the extent of excess. It will certainly have an impact on prices, even if there is a bumper rabi crop. In that, case the declining trend in inflation may turn out to be a false dawn, calling for a return to tightening measures before long.  The press release of the central bank reveals awareness of a possible recurrence of high inflation. Rupee depreciation and oil prices are other factors to reckon with. Hence, the Bank has done well to wait and watch before relaxing the existing policy parameters, resisting pressures from official and business circles. The tempo of government expenditure is likely to gain further steam soon in view of elections to important State assemblies in the coming months. Their results might as well decide whether the UPA will have enough votes to get its candidate elected as President in mid-2012. The importance for the ruling coalition of having a pliable President in a situation of no party enjoying a clear majority in the Parliamentary election of 2014, or even earlier, needs hardly be emphasised.  Hence, the focus will be on floating new schemes before they are disallowed by the Election Commission, or expediting the expenditure on the existing ones in order to tap the vote bank before the appropriations expire on the last day of March. For starters, there is already an announcement by the Prime Minister on instituting a credit risk guarantee fund of Rs 1,000 crore soon for the poor. The UP Chief Minister has indicated her intention to ensure year-round employment guarantee for the rural residents – an initiative that the Centre may emulate at an appropriate time. The problem facing the country is not on the supply side. There is no shortage of supply of industrial or agricultural goods with the exception of coal. It is a failure of management of supplies, not of monetary policy. The real villain is to be found on the aggregate demand side. Three-fourths of the fiscal deficit budgeted for the year was ‘achieved' in seven months. There is no respite in issuing doles in the name of an employment guarantee scheme that sees neither inputs nor outputs. Now, the government is reported to be planning an advance payment of wages for work not done! What is disturbing are the results of the two surveys on inflation expectations and consumer confidence (See RBI Bulletin, December 2011). The households in the sample expect the annual rate of price rise to become 12.2 per cent and 12.9 per cent three months and one year ahead, respectively. It should worry the central bank no end as it sets store by expectations in formulating policy. Around two-thirds of the households are aware of the RBI's monetary actions. Of them, only about one-fourth is convinced that the Bank is doing the needful. Of the latter respondents, less than 60 per cent feel that the RBI policies have an impact on controlling inflation. Does it mean that, by and large, even the average ‘knowledgeable' citizen does not believe in the effectiveness of monetary policy?

(The author is a Mumbai-based economics consultant.) HBL

RBI keeps key rates unchanged in monetary policy; indicates cut from now on

....... Commenting on the RBI's move to keep policy rates unchanged, C Rangarajan, Chairman of PMEAC said that the pause in the rate hike was an appropriate thing to do and that headline inflation would come down in the future..............

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RBI pauses - finally!

The Reserve Bank of India took a pause from its rate tightening cycle in its mid- quarter monetary policy announcement today. After 13 consecutive hikes over the past 20 months, the Reserve Bank of India decided to stay still and do nothing. It also provided guidance that a reversal in its tightening cycle may happen if conditions improve. The RBI's last 13 hikes cumulatively amounted to a 350 basis point increase in key interest rates. The repo rate (the RBI's key policy rate - the rate at which the RBI lends money or infuses liquidity to banks) remains at 8.50 per cent, while the cash reserve ratio remains at 6 per cent. Over the past few weeks, there has been a clamour from bankers and the market for a reduction in repo rates as well as cash reserve ratio, as growth was slowing down. However, with inflation still remaining high at over 9 per cent, a cut might have sent the wrong signal about its intentions. As leading economist and a former Deputy Governor, Dr S.S.Tarapore, put it in an edit page article in Business Line today, "A monetary policy relaxation would earn encomiums for the RBI but would be deterimental to long term growth with price stability". Even earlier, Dr Subir Gokarn, Deputy Governor, Reserve Bank of India, had pointed out that CRR was a monetary policy tool which would not be used merely to address liquidity shortages. The RBI reiterated the guidance it had given at the time of the second quarter review. While noting that downside risks to growth remained, it said, "The guidance given in the second quarter review was that, based on the projected inflation trajectory, further rate hikes might not be warranted. In view of the moderating growth momentum and higher downside risks to growth, this guidance is being reiterated. From this point on, monetary policy actions are likely to reverse the cycle, responding to the risks to growth."

HBL

RBI forms working group to enhance liquidity in secondary market

With a view to increase liquidity in the secondary market, RBI on Friday appointed a working group on government securities and interest rate derivatives markets. The committee, under the chairmanship of RBI Executive Director R Gandhi, will analyse the G-Sec and interest rate derivatives markets and promote retail participation in them. "The RBI has set up a working group comprising representatives from market and RBI officials to examine and suggest ways for enhancing secondary market liquidity in G-Sec and interest rate derivatives markets," the apex bank said in a notification. Seeking comments from stakeholders by January 17, 2012, it said that the working group will study the determining and influencing factors on liquidity of G-Sec and interest rate derivatives and the factors responsible for enabling and inhibiting liquidity in the secondary market. In its second quarter policy review in October, the central bank had said it will form a working group to study ways for increasing secondary market liquidity. The government had last month increased the investment limit for foreign institutional investors in government securities to $15 billion with a view to enhance capital flows. 

NDTV Profit

RBI organises Financial Inclusion Progarmme

JAMMU: As part of its financial inclusion and awareness drive the Reserve Bank of India (RBI), Jammu Office organised an outreach programme at village Bhata Dhurian, District Poonch on Thursday. The programme was presided over by K.K Saraf, Regional Director, RBI, Jammu and was attended by G.M Sahibzada, Executive President, J&K Bank Ltd., other senior government officials, bankers, teachers and students. A large number of villagers including women, senior citizens, MGNREGA beneficiaries and farmers also attended the programme. Speaking on the occasion, Saraf stated that RBI’s outreach programme which started during its Platinum Jubilee Year in 2009-10 were being continued with a view to deepening the penetration of financial inclusion and expanding the coverage of financial services to all sections and all regions of the country in a meaningful way, particularly to the economically backward and weaker sections of the society. Saraf further stated that Bhata Durian village is the second village chosen by RBI for outreach activities in the State for 100 per cent Financial Inclusion during 2011-12 by using Information and Communication Technology (ICT) for issuance of smart cards through the Business Correspondent (BC) model. The main aim was to achieve the objective of financial inclusion and providing doorstep banking services to the rural poor, small and marginal farmers, people of small means, women, etc. He also explained to the gathering that the biometric smart cards have inbuilt security features and are therefore safe for conducting transactions. The card holders would also get receipt for each transaction. During the programme, smart cards issued by J&K Bank Ltd. were distributed and the participants witnessed activation / transactions through smart cards not only for the common customers but also for MNREGA beneficiaries. The audience was familiarised with the history and functions of RBI through a film show. Films on features of genuine bank notes and on the functioning of the Banking Ombudsman were also shown for the benefit of the public. A short cultural programme was presented by the school children. With the help of J&K Bank Ltd., a counter for exchange of soiled and mutilated notes and issuance of fresh notes and coins was set up at the venue which attracted a huge crowd. Literature highlighting the functions of RBI and on financial literacy and education were distributed to the students and other members of audience. This was a new and unique experience for the villagers who showed great enthusiasm in getting connected to banks without visiting a ‘brick and mortar’ branch.

State Times

RBI to promote small, medium enterprises

GUWAHATI: The Reserve Bank of India (RBI), NE region wants banks to clear the credits of the Micro Small Medium Enterprises (MSME) faster to promote these enterprises for the sustainable growth of the region. To mark its centenary celebration, the Central Bank of India organized a symposium themed 'Role of entrepreneurship and bank credit for development of MSME'. RBI Regional Director Sureskha Marandi said on the occasion, "We have received complaints that many banks take too long to clear an entrepreneur's credits or loans. Banks must follow the time line of its citizen's charter while accepting or rejecting a loan. With less number of heavy industries in the region, banks should play a vital role in encouraging small entrepreneurs." Marandi said stern action will be taken against any financial institution which fails to meet the norms of citizen's charter or involves in any financial mismanagement. The RBI has also opened a 'Banking Ombudsmen' cell here where an entrepreneur can file complaints against any bank violating the citizen's charter. According to RBI statistics, only nine per cent of banks loans in India go to MSMEs.

TOI

Farmers' forum alleges anomalies in farm lending

Chennai : Direct lending to agriculture by credit institutions such as banks suffer from various anomalies, according to a farmers' forum. The Centre has stipulated that 13.5 per cent of total loans advanced by banks have to be direct agriculture lending, “Credit institutions are, however, deliberately reporting higher disbursal of direct agriculture credit than what is actually given, possibly to the extent of 100 per cent in some cases,” said Mr Ajay Jakhar, Chairman of the Bharat Krishak Samaj, in a letter addressed to the RBI Governor, Dr D. Subbarao. The letter comes within days of the Union Finance Minister, Mr Pranab Mukherjee, telling the Chief Ministers of the East Zone that banks have achieved 50 per cent of the target set for farm credit in the first half of the current fiscal. In the Budget for the current fiscal, the Finance Minister fixed Rs 4.75 lakh crore as target for agriculture lending. Elaborating his charges by pointing out to “information compiled from credible sources”, Mr Jakhar said people living in cities such as Delhi and Chandigarh have obtained agriculture loans worth Rs 32,000 crore during 2009-10. “Farmers in Uttar Pradesh, Bihar, West Bengal and Jharkhand received loans worth Rs 31,000 crore. This is unbelievable,” he said. Though agriculture credit has increased, it has happened through urban and metropolitan branches of banks. “It is reported that agriculture loan disbursals from urban branches of banks have increased to more than 35 per cent of total agriculture lending,” the forum chief said. Going by the letter, 52 per cent of farm loans disbursed in 2009-10 went to only Andhra Pradesh, Maharashtra, Delhi, Haryana, Tamil Nadu and Chandigarh. “For obvious reasons, this actually seems unlikely,” Mr Jakhar said. Just 29 per cent of the credit is extended between June and September – the main season for kharif sowing. Another 24 per cent of loans is disbursed between February and March, a non-agricultural season but an ideal period to meet the Government target, Mr Jakhar said. He regretted that the share of loans above Rs 25 crore had increased to 16.8 per cent from 5.7 per cent, extension of loans with a limit of Rs 25,000 had dropped to 13.3 per cent from 35.2 per cent during 2009-10. According to the RBI data, agriculture lending by public sector and private banks dropped in share in priority sector lending during 2010-11. Public sector banks lent Rs 4.14 lakh crore last fiscal against Rs 3.72 lakh crore in 2009-10. However, in terms of lending in the priority sector its share dropped to 16.5 per cent from 17.9 per cent during the review period. In the case of private banks, the actual lending increased to Rs 92,136 crore (Rs 90,737 crore) but the percentage in priority sector lending dropped to 15.7 per cent from 19.4 per cent. Mr Jakhar also pointed out to a survey by Nabard that showed that non-interest and higher transaction costs imposed on farmers added another seven per cent to the interest cost of seven per cent, thus, doubling the total loan cost to 14 per cent. “These raise the questions of appropriateness and veracity of agri-credit lending,” Mr Jakhar said and urged the RBI to conduct an audit on banks' agriculture lending.

HBL

Bank officers brainstorm to curb rise in cheque fraud

NEW DELHI: Senior officials from seventeen leading banks attended a meeting organized by the Punjab National Bank to discuss ways to curb rise in frauds under the Cheque Truncation System (CTS). The first edition of the conference saw 44 senior officials from 17 banks, including banks like State Bank of India, Canara Bank, ICICI Bank, HDFC, Axis Bank among others; who brainstormed and discussed ways of controlling the menace and establishing ground rules for collecting bank's responsibility for 'due diligence and paying bank's duties'. The discussions ended with passing of a resolution on the role of banks to contain the menace and also decided to take up the issue with the Reserve Bank of India (RBI) for providing separate guidelines on reporting of frauds under CTS and other related issues.

TOI

Markets might want a rate cut, but Subbarao can’t oblige

........ So, the beleaguered economy will continue to wheeze along, with no respite from high interest rates. The markets might be sorely disappointed, but Subbarao has valid reasons for not cutting rates just yet. With the government not doing anything on the economic policy front, and the RBI holding fire on interest rates, it will be a tough ride for the economy as it enters 2012.

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Accountability needed at the Bank

The time has come for accountability at RBI. This institution makes decisions that affect the fortunes (lately misfortunes) of many Indians, rich and poor. By making its very predictable statement of no change in policy on December 16, RBI stands out alone in the entire world with its ultra-hawkish policy against inflation. This when fear of very low growth, and deflation, is the problem facing most economies in the world..................

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Rupee grabs RBI lifeline, gains most in 19 months

........ In the mid-quarter monetary policy review released on Friday, RBI said the rupee depreciated mainly because of a widening trade deficit, adding pressure to the current account and the tendency of exporters to defer repatriating their export earnings. The central bank said it expects the rupee to remain under stress.

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RBI frees rates on NRE deposits to attract dollar inflows

KOLKATA: The RBI has unleashed new ammunition to support the rupee from depreciating. On Friday, it deregulated interest rates on NRI deposits to attract more dollar flow into the country. It has decided to deregulate interest rates on non-resident (external) rupee (NRE) deposits and ordinary non-resident (NRO) accounts with immediate effect. This will attract more dollar as banks are likely to increase the interest rates. In case of NRI deposits, the dollar or any other foreign currency gets credited to a nostro account of a local bank which, in turn, deposits money in local currency. This comes within a day of taking a slew of administrative measures that helped the rupee to close higher 52.70 Friday from 53.65 the previous day, giving indication that the central bank is using all its ammunition arrest the rupee from sliding further. The rupee had depreciated by about 17% against the US dollar over its level on August 5, 2011, the day on which the US debt downgrade happened. RBI said the latest measure will provide greater flexibility to banks in mobilising non-resident deposits. Banks have been freed to determine interest rates on both savings deposits and term deposits of maturity of one year and above under NRE and savings deposits under NRO accounts.

ET

Auditors should provide early warning signals: Subbarao

Mumbai : Terming auditors as the "eyes and ears" of the central bank, the Reserve Bank of India (RBI) Governor D Subbarao today said accounting professionals should provide early warning signals to ensure better supervision in the banking system and also called for an inter-disciplinary approach to the job. "In our view, auditors are the eyes and ears of RBI and we trust them to alert us to early warning signals to assist us in supervisory process," Subbarao told the 26th western regional council meet of the Institute of Chartered Accountants of India here this morning. The governor also said inter-disciplinary approach of the auditing profession should be increased to bring in more practical approach. Citing the example of different accounting standards followed by RBI and statutory auditors, Subbarao said in certain cases, the central bank has found that the statutory auditors had underestimated the extent of non-performing assets (NPAs) and provisioning requirement for banks. "In RBI's view, in certain cases, the statutory auditors have underestimated the extent of NPAs and the required provisioning. Since the RBI, as the supervisor of the banking system, relies and leverages on the work done by auditors, the profession should effectively address this issue," he said. Subbarao also emphasised on the value system like integrity and transparency, for preventing a Satyam like fraud in the country.

BS

Credit quality still an issue: Bankers

..... “Just because the RBI has paused doesn’t mean that things will change right away. But the pause will certainly boost the sentiment,”...................

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If you don't read the fine print...

........While the Banking Regulation Act covers the control exercised by the Reserve Bank of India, the consumer protection issue and the related Act does not integrate itself with RBI's control over the banks................

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'Incredible' India? Hardly, say business leaders

..... India now faces the worst-case scenario that was touted earlier this year - stubbornly high inflation, slowing growth, a mounting fiscal deficit, a rupee that risks freefall -- and both policymakers and the Reserve Bank of India (RBI) have few levers to fix it......

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Pranab hails RBI move to press 'pause' button

The Finance Minister, Mr Pranab Mukherjee, has welcomed the RBI move to change its policy stance from monetary tightening to a pause and keeping its policy rates unchanged at the latest mid-quarter monetary policy review. This could help regain growth momentum with improved macro-economic parameters in remaining period of current fiscal, Mr Mukherjee told reporters outside Parliament soon after the RBI's mid quarter policy announcement. The central bank had in succession raised policy rates 13 times since March 2010 to tame overall inflation. The Finance Minister also welcomed the RBI Governor, Dr D. Subbarao's resolve to check speculative intervention in foreign exchange market which among other factors has contributed to the sharp slide in rupee against the dollar. Mr Mukherjee also expressed confidence that overall inflation would moderate in the coming weeks. He also pointed out that there has been an appreciable decline in food inflation in November. The Finance Minister, however, expressed concern that inflation in manufacturing goods remain firm at 7.7 per cent. "There is need to improve business sentiment and regain growth momentum," he said.

HBL

A tricky balance

The Reserve Bank of India's decision to retain the policy interest rates and the CRR (cash reserve ratio) at their existing levels is entirely in line with market expectations. But the decision could not have been easy. There were strong reasons that would have justified a rate hike, or for that matter even a cut in the rate. High up in the first category is the stubbornly high inflation, which has remained above 9 per cent for 12 months in a row. Despite food inflation moderating sharply, November's inflation rate of 9.11 per cent, marginally down from the October figure, is a cause for worry. Quite ominously, the non-food manufactured product inflation, which the RBI regards as the ‘core inflation', rose to 7.9 per cent (from 7.6 per cent in October), reflecting higher input costs. The sharp upward revision of inflation figures for September to 10 per cent is another worrying development; it raises fears of similar revisions for subsequent months. On the other side, the clamour for a rate cut has centred on the fact that a rapidly slowing economy, especially in the industrial sector, requires a boost. Under the circumstances, the RBI's decision to maintain the status quo is sober and well considered. It ensures continuity in seeking to strike a balance between the often conflicting goals of reining in inflation and encouraging growth. In its second-quarter policy statement (October 25), the central bank hinted at a pause in future interest rate hikes, while giving itself room to address short-term growth issues and concerns. While both inflation and inflation expectations are currently above the comfort level for the RBI, the pressures are likely to abate in the coming months, notwithstanding high crude prices and the sharp depreciation of the rupee. The year-end target of 7 per cent for inflation is retained. However, downside risks to growth have clearly increased owing to a combination of domestic factors and a deteriorating global economy. As matters stand, a growth rate of 7.6 per cent for the current year, projected by the RBI in October, will be difficult to achieve. The central bank is not hedging its bets when it says that “from this point on, monetary policy actions are likely to reverse the cycle, responding to the risks to growth.” However, as the sharp downslide in rupee shows, monetary policy must be prepared to deal with unforeseen contingencies, many of which are likely to occur due to factors outside its domain.

HBL

Status quo from RBI

.....We need to have the policymakers sort out growth and inflation issues to avoid these contradictions. Neither of them is the prerogative or responsibility of just the government or RBI. Evidently, both have to speak to each other to make things work, which is important at the end of the day.

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The turn of the wheel

In the mid quarter monetary policy review announced on Friday, the RBI has actually used the words " reverse the cycle" but left this for future action, a significant change that comes at a particularly difficult time in the Indian economy...................

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Monetary policy: pause and effect - Madan Sabnavis

........... The RBI appears to have undertaken a stocktaking exercise this time by not invoking any action ostensibly, to closely monitor developments before taking any measures on the monetary and forex front. One can surmise that its view could change in January if it is convinced that liquidity and exchange problems are more permanent. Also, the growth-and-inflation trade-off will be tested in terms of the “good harvest argument” impacting consumer spending, and hence index of industrial production, or IIP, growth and food inflation.

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‘No change', a welcome change

.....The mid-quarter policy statement has addressed the concerns on the interest rate side, by clearly indicating a likely reversal in the cycle with monetary policy actions being directed towards addressing growth related issues going forward,'' .................

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Lock kiya jaye............

With interest rates likely to head southwards, lock in your investment at prevailing high interest rates in fixed income products such as bank FDs and debt MFs.............

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Hard-pressed to fill coffers with dollars

.......RBI move props up rupee, but dip in foreign currency reserves a big worry.......................

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RBI detects counterfeit notes

New Delhi, Dec 16 : RBI has detected more than two lakh pieces of counterfeit notes in the current financial year even as it has strengthened the mechanism to detect fake currency by banks, Parliament was informed today. RBI has reported that the "data on source-wise detection of counterfeit notes during the period April 2010 to September 2011 is 264,282 pieces," Minister of State for Finance Namo Narain Meena said in a written reply in the Lok Sabha. The maximum number of note pieces (152,930) have been detected in the Rs 500 category. One special FICN co-ordination group has been formed in Ministry of Home Affairs to share the intelligence/information amongst the different security agencies of the state/centre to counter the menace of circulation of fake currency within the country with CBI being the nodal agency, Meena said. "The security features in the high value currency notes are being constantly upgraded by RBI. RBI has also strengthened the mechanism for detection of counterfeit notes by the banks," he said.

IBN Live

What RBI must not do today – S.S.Tarapore

With inflation where it is, it would be best for the RBI not to attempt a direct or indirect relaxation of monetary policy. The central bank should not drive down yields on government paper

December 15, 2011: Market participants will be waiting with bated breath, hoping that the Reserve Bank of India (RBI) will shower goodies for all. We can trust the RBI to set out a well-crafted Policy Statement today as part of its Mid-Quarter Monetary Policy Review.The Indian economy continues to grow at a healthy rate of growth but there is gloom that we are no longer enjoying a 9 per cent real rate of growth. In India, policymakers, opinion makers, India Inc. and the public at large refuse to accept that there are cycles in economic growth and that it is not possible for an economy to grow at higher and higher rates of growth. Once an economy overheats, a slowdown is inevitable. The RBI and the government need to seek the advice of Gita Gopinath, the young Harvard Professor, who has specialised in economic cycles in the Emerging Market Economics (EMEs). We need to recognise that the global economy faces a number of serious threats which could result in a hair-curling slowdown. Given our proclivity for policies which serve narrow sectoral interests, we believe that the laws of economics do not apply to us in India, simply because we are different. We debunk the relationship between over-heating and generalised inflation. Of course, we can always blame the slowdown to the global contagion. The fact that inflation in India is well above that in major industrial countries is just not our fault! If the rupee is depreciating, it is all because of problems faced by the major currencies. The RBI has a major task of reconciling policy contradictions. It is now generally accepted that the growth rate in 2011-12 would reflect a sharp slowdown. While the official line still is that the growth rate will be 7.5 per cent in 2011-12, the top policy honcho, Dr Kaushik Basu, has conceded that the rate could be 7.25 per cent. With the shocking industrial production numbers, there are many analysts who are already talking of an even lower growth of 6.5 per cent. What is not fully appreciated is that, even at a growth rate of 6.5 per cent, we would continue to be one of the fastest growing economies in the world. The overall inflation rate continues to be in the 9 per cent plus range. It is unconscionable that the RBI is being blamed for the inflation just because it has been fighting it with a series of repo rate increases. Some analysts would see a glimmer of hope in food inflation falling to 6.6 per cent and hope that the base effect would bring down the year-on-year overall inflation rate to 7 per cent by March 2012 so that we can claim victory over inflation. It hardly needs to be stressed that the battle against inflation is far from over. If, at all, monetary policy is to be blamed, it is because the RBI has not raised the repo rate more sharply, and also not raised the cash reserve ratio (CRR) to tighten liquidity. But, then, this is nobody's criticism of the RBI.  As stressed in these columns, the window of opportunity for monetary policy action is very narrow and it is now clear that the authorities have missed the opportunity to slay the inflation monster. The fisc is hopelessly out of alignment with the objectives set out. The slowdown in the industrial sector is no surprise. The exchange rate is under pressure precisely because when the capital inflows were large, the rupee was allowed to appreciate as the RBI did not intervene. Now that the rupee is under pressure, it is not prudent to intervene to slowdown the depreciation. The balance of payments current account deficit (CAD) is reportedly over 3 per cent of GDP — the highest among the Asian EMEs. Taking all factors into account, it would be best that the RBI does not attempt either direct or indirect relaxation of monetary policy. Now, what is it that RBI should not do in its policy announcement today? First, with inflation where it is, there should be no question of reducing the repo rate. Secondly, the RBI should not respond to the cries of the seductive sirens pleading for reduction of the CRR. Thirdly, the RBI should not aid and abet the government's unreasonable demand that it should be able to borrow more at lower interest rates. More particularly, the RBI should not drive down yields on government paper by undertaking large open market operation purchase of securities.The present monetary policy measures are far too mild and allow arbitrage opportunities to banks to borrow from the RBI and profitably on-lend these funds.To sum up, the RBI would serve the larger interests of overall stability and growth by a standstill policy. A monetary policy relaxation would earn encomiums for the RBI but would be detrimental to long-term growth with price stability.

HBL