How the rupee went from 54 to 50 against dollar in one month

.... intermittent intervention by the Reserve Bank of India (RBI) by selling dollars in the foreign exchange market has helped remove the froth off speculation — and provided some support to the rupee. In addition, after the rupee hit its lifetime low last month, the central bank introduced curbs on currency contracts, which......

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Getting to the Core of Inflation

To tackle inflation effectively, several government departments have to coordinate policy action

First we were in denial about inflation: the supply-shock explanation fell flat with very good production numbers in FY2011, likely to be replicated this year. The excuse that the poor were less poor and eating more was used to show that inflation was due to prosperity, with the MGNREGA being the motivator. While this factor could be at play at the margin, it has not been decisive and is no longer harped on. The RBI is firing away at inflation with a relentless policy of rate hikes, which has not worked quite the way it was expected to. But we need to know how this inflation has come to tackle it appropriately. The answer seems to be a shrug. One way to tackle this issue is to actually analyse threadbare the mechanics of inflation. This is so because inflation combat has to be a joint action from various ends and cannot be the sole responsibility of one agency, which today is the RBI. The accompanying table provides the contribution of various products to inflation along with the ministry or agency responsible. To calculate the contribution of various sectors to inflation, the weighted change in the overall WPI and individual products has been calculated. Various products have then been grouped under different ministries that oversee their operations. The major cause of price increase has been noted so that the respective body can address price issue. There are multiple factors that have contributed to inflation. The highest share has come from the so-called core sector: non-food, non-fuel manufactured products over which the RBI has control. Globally, prices of metals have started declining, but we have not seen that in India. So, around 40% of inflation may be attributed to possible demand-pull pressures. While global prices have come down, the rupee has depreciated, nullifying those gains. We can see that there are various arms of the government that should take some responsibility for inflation. First, the agriculture ministry has to review its policy of minimum support prices (MSP). The MSPs have been increased relentlessly by the Commission on Agricultural Costs and Prices (CACP) to reward farmers. While production has increased for cereals and to a certain extent in pulses, it has had the tendency to increase benchmark prices in the market resulting in higher inflation. Second, the ministries of petroleum and finance have tried to align the prices of petroleum products to the market, which actually makes us work on a delicate three-dimensional trade-off: higher prices, fiscal deficit and health of oil marketing companies. Around 11% of inflation has resulted from this factor. Third, the ministry of consumer affairs has to address the issue of warehousing and the Warehouse Development and Regulatory Authority should put in a structure to improve storage to cut down on wastage in fruit and vegetables. Around 40% of our horticulture output goes waste due to absence of cold storages. In this segment, we have witnessed high growth and where supply outstrips demand provided we can harness it through lower wastage. These organs need to make the system more efficient. While the contribution to inflation was negative in December, it was as high as 8.18% in October, prior to the decline in prices. Fourth, the area of milk, dairy products, eggs, meat and so on comes under the department of animal husbandry. Higher cost of animal feed and fodder has hiked the cost of production of these products. The significant aspect of these prices is that they are never mean-reverting, which happens for horticulture and cereal products. Fifth, the higher prices of textile products have to be looked at jointly by the finance ministry which hiked taxes on readymade garments and the ministry of agriculture, which oversees the MSP. But they might have limited control because of global factors. Sixth, there is the global factor in the form of oil prices that directly impacts the prices of domestic crude as well as nonregulated oil products. Global prices translate into domestic ones through the exchange rate mechanism. The RBI could have a role to play in stabilising exchange rates to smoothen price volatility. The inflation matrix is, hence, quite complex and there is evidently no singular solution. And the conundrum really is that as every constituent is impacted by inflation — as the producer of a product consumes other products whose prices are increasing, there is an inherent motivation to increase one’s own price to maintain the standard of living. This inflationary spiral, or rather the vicious circle, needs to be broken, and it appears that it can happen only in the medium run.  Roughly 70% of inflation can be addressed by various departments while the balance, which includes global influences, would still be beyond anyone’s purview. What is most important is that all these departments should start talking to one another. 

- Madan Sabnavis, CHIEF ECONOMIST, CARE RATINGS  (ET)

Indian Banks’ Capital Edge

With the RBI flagging off the implementation of Basel 3 guidelines, Indian banks will have to plan for more capital in the years ahead. They are wellplaced to meet higher capital requirements and indeed can strengthen their competitive position vis-à-vis international banks — provided the government can deliver on its own responsibilities towards public sector banks. The RBI has set a more demanding schedule for Basel 3 implementation than the Bank for International Settlements. The BIS has set the deadline for full implementation as 2019; the RBI would like Indian banks to comply by 2017. The total regulatory requirement of total capital (tier 1 and tier 2) in India is 9%, higher than the BIS norm of 8%. It will remain so under the new guidelines. Under Basel 3, two important changes happen. One is that the quality of the 9% capital required is higher. At present, bank capital is split almost evenly between tier 1 and tier 2. Under Basel 3, tier 1 will constitute 7% out of the total 9%. The other change is that banks will be required to have a capital conservation buffer, comprising common equity, of 2.5%. That takes the total capital requirement to 11.5%. Also, between 2013 and 2017, banks will be expected to operate at a minimum tier 1 leverage ratio of 5%. At the regulatory requirement of 9%, Indian banks were operating with a capital adequacy ratio of 13% in 2011 (under Basel 1). At a regulatory minimum of 11.5%, banks can be expected to be operating with capital in the range of 15-17%. This is the new bottom line where capital is concerned. Indian banks will have to make their plans for capital accordingly. Are they equal to the task? There are several reasons for optimism. First, investor appetite is likely to be healthy because returns to primary issues of Indian banking stocks, including PSB stocks, over the years have been good. Secondly, banks are seen as a play on the economy. In putting money in banks, investors are looking at an economy with a growth potential of 8-9% and bank loan growth upwards of 20%. Thirdly, return on assets in Indian banking is among the highest in the world today: it has been above 1% every year since the subprime crisis. While banking systems in the west are still reeling under the impact of the crisis, it is almost as if no crisis happened in Indian banking. Western bankers have expressed two big concerns about the higher capital requirements imposed by Basel 3. One, it will depress banks’ profitability. Two, it will depress economic growth because some of the higher cost of capital will be passed on to borrowers. Neither is particularly worrying in India. Increases in capital have made little dent on banks’ net interest income (as a proportion of assets) over the years. Any impact in coming years will be small, if at all, because there are still numerous highyielding products that are still open to banks on both wholesale and retail sides: SMEs, vehicle loans, personal loans, credit cards, etc. Besides, PSBs have only recently woken up to the potential for fee income. Increases in fee income will sustain return on assets even if net interest income is dented. For the same reasons, the impact on corporate borrowers and hence on economic growth will be negligible. (Even in western economies, BIS estimates the impact on growth to be a mere 0.04% per year). High growth and high returns will continue to make Indian banks attractive to investors in India and abroad. Some banks, such as HDFC Bank, are generating substantial surpluses and hence may not need a great deal of capital from the market. Overall, capital is unlikely to be a constraint for Indian banks in the coming years. There could be constraints arising from one or two other factors. One is the low prices of stocks in the Indian market: banks may not find it attractive to issue capital at current prices. A possible answer is to raise small sums through rights issues in such periods and approach the broader market when things look up. A bigger constraint is the government’s shareholding in PSBs. As SBI finds to its cost, the government may not find it easy to contribute its share in order to retain its shareholding. It may not be willing to reduce its shareholding below 51% either. If majority government ownership is to stay, the annual budget must factor in annual requirements towards bank capital. Basel 3 is likely to impact western and Indian banks in very different ways. Banks in the west are raising their capital adequacy levels through deleveraging, that is, by shrinking their balance sheets. In India, in contrast, banks will be raising capital to finance growth. The fear with Basel 2 was that large international banks would increase their competitive advantage by using advanced risk management models that would lower their capital requirement. In contrast, Basel 3, with its enhanced capital requirements, is likely to improve the competitive advantage of banks in India and some other emerging markets.

ET

Poll panel keeping eye on large cash withdrawals in Goa

Large cash withdrawals from banks in Goa are being monitored and the Election Commission of India (ECI) has asked the Reserve Bank of India (RBI) to take steps against money withdrawls from banks with the possible intention of bribing voters, a poll official said Monday. Speaking to reporters, state chief electoral officer (CEO) S. Kumaraswamy said that every withdrawal upwards of Rs.2.5 lakh from banks was being monitored in view of the election commission's guidelines.  "We are talking to banks about it. The moment a withdrawal above Rs.2.5 lakh is made, it is monitored both by bank officials and income tax department," he said. He also said that border checkpoints were also being sensitised to intercept the flow of liquor and other contraband as well as large amounts of illicit cash, which could be used to influence voters during elections.  "Border checkposts have already been alerted. We are working on motivating the election staff too," Kumaraswamy said.  The ECI on Thursday wrote to the RBI to ensure banks were not "misused by unscrupulous persons" for influencing voters with cash.  The ECI communication followed an incident earlier that week (Jan 9) when the Income Tax department officials seized cash of Rs.12.38 crore withdrawn from a bank at the Delhi-Uttar Pradesh border.  

India Today

Borrowings Test RBI’s CRR Resolve

Tight liquidity forces banks to borrow Rs. 1.56 lakh cr from RBI, double the amount borrowed 2 weeks ago

Bank borrowings from the Reserve Bank of India has doubled in two weeks, testing the Reserve Bank of India’s resolve not to signal a shift in monetary stance of fighting inflation by easing the cash reserve requirement. The maturity of forward contracts where the central bank had sold US dollars to prevent the rupee slide last month, and higher demand for funds from companies that no more want to borrow overseas due to higher rates, could push up interest in the domestic market in the short term, traders say. “The selling which was done by RBI for intervention was partly extended by receiving the forward sales,’’ said Ashish Vaidya, executive director, trading, UBS AG. “So, the impact of that in terms of systemic liquidity will be felt on the day the forward sale matures.” Banks borrowed . 1.56 lakh crore from the central bank, double of what it was two weeks ago, setting off speculation that the RBI may have to take some measures to ease the pressure, which may be even cutting the cash reserve ratio from 6%. They also borrowed . 200 crore by paying penal rate that is 1 percentage point more than the 8.5% repo rate in the so called marginal standing facility. The borrowing under this window is done when a bank pledges securities by breaching the minimum 24% limit of mandated government bond holdings. The rupee has already appreciated by almost 6.2% this year, partly due to the impact of the RBI measures to curb speculative trading. The call, or overnight rates, touched a high of 9.55%, reflecting the tight cash position in the market. Loans demand could also be leading to tight liquidity, some say. “There is a shift in credit demand from foreign currency to rupee-denominated loans, since it will now be more expensive to take the dollar route,” said Moses Harding, head, asset-liability committee at IndusInd Bank. Although the RBI is likely to continue with its open market operations, ie, buying of bonds from investors that leaves with more cash in the system, traders say buying back may not be of much help since government again sells bonds to take the cash away from the system. “OMOs will not add to the liquidity of the banks,” said a treasurer at a state-run bank who did not want to be identified. RBI in the past had cut the statutory liquidity ratio, the amount of deposits to be held in government bonds, to boost liquidity but such a move may be difficult this time due to high government borrowings.

ET

World Bank reduces India economic growth estimate

.... “As far as contingencies are concerned, the RBI (Reserve Bank of India) is holding on to its forex reserves to deal with the possibility of a sharper rupee depreciation and large companies are keeping cash reserves for difficult times,”.....

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World Bank sneezes, India shivers

...According to the latest RBI figures, India's foreign exchange reserves stood at $293.54 billion as of January 6, down from $296.69 billion as of December 30, 2011.......

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Bank ‘bounty’ shocks Bengal teacher

How would a person feel when the bank balance in his/her account shows Rs 49,570,08,17,538, an amount which is almost equivalent to the country’s annual Rail Budget (Rs 58,000 crore)?..........

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RBI’s Chakrabarty discusses limitations of crisis management frameworks

K.C.Chakrabarty, a Deputy Governor at the Reserve Bank of India, on January 16 said despite the overhaul of crisis management systems, central bankers and regulators must be prepared to manage the next crises. "The increasing interconnectedness of global markets, economies and institutions have only added to the potential of a crisis anywhere in the world to trigger contagion in the rest of the world," Chakrabarty told attendees of the Programme on Crisis Preparedness in Interconnected Markets in Hyderabad, India. "All this has only underscored the importance of anticipating such low-probability and high-impact events, taking pre-emptive action for preventing crises and responding effectively to such events, once they have set in – all key components of any effective framework for crisis management." Chakrabarty said recent experiences have demonstrated that resolving a financial crisis is complex and costly, regardless of what caused the crisis and the solution. He said while the best crisis management framework is one that prevents crises, no financial system can be completely immune from episodes of financial instability from time to time and there will be a need to manage crises. Chakrabarty said the best service central bankers and regulators carrying the responsibility of fostering financial stability can do is to remain prepared to manage crises. "There are important lessons to be learnt from each crisis. Yet, we can count on each crisis to be sufficiently different from every other crisis so as to make their identification a challenge," he said.

http://www.centralbanking.com/central-banking/speech/2139201/rbi-s-chakrabarty-discusses-limitations-crisis-management-frameworks

RBI outreach camp at Changki

Kohima, January 17 : The 2nd Phase of the RBI Financial Outreach Programme will conduct its next camp at Chanki village under Mokokchung district on February 8, 2012. The programme will begin at 10 a.m. where Executive Director, RBI, V.S. Das will be the Chief Guest of Honour. The main objective of the camp is to bring awareness among people in remote villages about RBI in general and banking in particular and to bring them under the fold of main-stream banking system.

The Morung Express

Banker with a Smile Needs to Move Fast

On the face of it there does not appear to be anything out of the ordinary about B Prabhakar, the new chairman and managing director (CMD) of Andhra Bank. He would, in fact, give the impression of being a docile and easy-going person. A perpetual smile on his face may have misguided many to assume that that he has little or no worries. But only a few who have worked closely with him know that he does not display emotions very easily. Also, practising yoga daily for over 25 years has helped him gain emotional stability and maintain calm. A chartered account by training and a graduate from Mysore University, Prabahakar started his career at Bank of Baroda where he worked extensively in the credit and treasury division. He was posted twice overseas — Zambia in his younger days and later on at London. Interestingly, having joined as a specialist, he was exempted from rural posting. An ardent music lover, he spent three decades with the bank where he rose to the rank of general manager way back in 2003 to become the youngest GM those days. But luck did not favour him. First, it took him five years to rise to the post of executive director. Thereafter, the appointments committee did not select him for the CMD post at PSU banks in 2009 even as most bankers felt that he was more suitable than other candidates in the list. “Fortunately, all his bosses have recognised his contribution to work which is a satisfying feeling at the end of the day,” said a colleague of Prabhakar at Bank of Baroda. He considers himself to be lucky to have worked under RBI’s Deputy Governor K.C.Chakrabarty in his former avatar as general manager—treasury. He would have learnt from him the art of putting across a point. In fact, Chakrabarty and Prabhakar joined the bank together and were in the same induction programme, with Chakrabarty one scale senior to him. While having worked under TS Narayanasami former CMD of Bank of India, Prabhakar realised the importance of taking quick decisions — something which will be very useful for him to emerge as a successful bank chief. Prabhakar was in Zambia between 1989 and 1993 at a time when the Zambian economy was opening up and making structural changes. He returned to be part of the treasury team at a time when the Indian economy too was moving from controlled environment towards liberalisation. His learning in Zambia helped him stay several steps ahead of his peers. That phase also prepared him to function in a deregulated environment and also boosted confidence level. A few years later he was given charge of the Delhi zone where he dealt with the credit portfolio. The lending business in Delhi was a unique experience as it prepared him to deal with shrewd corporates and businessmen. From Delhi, he was posted to London for three years to take over from Chakrabarty. Some of his colleagues say that as chief of the bank, Prabhakar, will have to shed his mild approach and become more tough and firm in all walks to business life. Having worked closely with different kinds of CMDs — some aggressive and some-take-it-easy types — Prabhakar is well aware of the outcome in each case. With little less than two years at Andhra Bank, he will have to move fast to get noticed.

ET

New journeys, new challenges as India's microfinance promoters sail into new lending areas

Former RBI Deputy Governor Usha Thorat says regulations will have to keep pace with the changes at the business end. "All this time, MFIs were doing many things that were not microfinance, like selling gold," she says, pointing to the practice of MFIs giving consumption loans even earlier. The RBI's December guidelines changed that by saying that at least 75% of an MFI's loans have to be income-generating ones. In this backdrop, MFIs are branching out into consumption loans. "There are new regulatory issues," says Thorat. The RBI declined to participate in this story.
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RBI extends banking facilities to remote areas of Northeast

The Reserve Bank of India, recently conducted a financial outreach camp in remote villages of Tripura. For the people of Bagmara village in Tripura's Dhalai District, banking facilities was just a dream till some years ago, but today, hundreds of them are a part of it, thanks to the financial outreach programme that has been initiated by the RBI. They villagers are happy, as more than 725 of them got their zero balance accounts and for the first time they will have a passbook. 325 soft loans were also disbursed mainly among the women self help groups of the region. Apart from Reserve Bank, State Bank, NABARD, United Bank of India and Tripura State Cooperative Bank had also set up stalls. The main aim behind organizing this camp was to aware and educate people and prevent them from putting their money in the unauthorized non banking financial companies and institutions in hope of hefty returns. "Education on financial literacy is one of the most important areas that require focus and our officials are working in collaboration with the local bodies. They are very active in educating people on various facilities available to the people from the bank," said S Karuppasamy, Executive Director, Reserve Bank of India. This was the 18th camp organized by RBI in Northeast since 2009 for enhancing banking facilities. Through these camps, the central bank has included more than 1000 villages and spread awareness on various banking facilities and security features of currency notes in northeast. Reserve Bank aims to improve the credit-deposit ratio, increase the agri credit flow and the number of branches would increase to stimulate growth of industry, trade and commerce in region. "We have received a soft loan of Rs 12,000 at very low interest rate from a bank during this camp. With the money, there will be rise in our income and it would enable us to run our families better and educate our children," said Sima Narang, member, Self Help Group. "We have received loan from the bank to cultivate mushroom. We hope to make good profits now and also expect similar co-operation from the bank in future," said Ratna, another member of Self Help Group. These facilities will not just help people keep their money safe but also pave way for the economic development of the region. Extending banking facility in the northeast is a huge challenge for the banks because of the regions difficult terrain, lower population densities, poor infrastructure and communication facilities and law and order problems.

http://aninews.in/newsdetail3/story32084/rbi-extends-banking-facilities-to-remote-areas-of-northeast.html

Shyamala Gopinath's controversial appointment

.............While the NSE is not under RBI regulation, the currency derivatives segment is under the dual regulation of SEBI and RBI. This was directly under Ms Gopinath's regulatory purview and she inaugurated all four currency bourses - that of the NSE, the Bombay Stock Exchange (BSE), MCX-SX and the United Stock Exchange. The regulator's role in this segment is nothing short of controversial with both RBI and SEBI choosing to maintain a studied silence on two major issues ...............

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Hope of rate cuts as India inflation at two-year low

….While the RBI is not seen as likely to change its stance at a meeting next week, if inflation continues on a downward trajectory - as forecast by the Government - the bank has signalled it is ready to cut…….

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Banks need to invest in digital platform: PwC

Lenders in India are not investing in digital platform for banking even as customers are ready to pay for service which they use, according to a survey by consultancy firm PricewaterhouseCoopers (PwC). "Banks have generally been slow to openly embrace the digital innovation...They [the customers] are willing to pay for these and yet the majority of banks still only provide basic mobile and Internet banking services," PwC India Associate Director for Financial Services Robin Roy said. The commercial banks tend to see digital platforms only as a way to reduce costs and it is time they start to invest in their digital offerings keeping in with the expectations of the customers, he added. PwC report 'The Digital Tipping Point' released today, said customers are willing to pay for extra services. Eighty-five per cent of those polled in India said they will pay for transaction notifications coming through social networking sites like Twitter and Facebook. Other areas where users are ready to pay include spending analysis tools, relevant third-party offers and storing documents in a virtual vault, among others. Stating that the needs of the generation Y are different and that the grouping is very diligent in choosing whom they bank with, the report says, "The quality of a bank's digital offering will become a key determinant for customer stickiness."

BS

One needs to file strong RTI application in financial sector says Krishnaraj Rao

....The session on RTI, seventh on the subject organised by the Foundation, focused on the sector of banking and finance along with regulatory bodies like the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), the pension regulator, capital markets, the stock exchanges (BSE, NSE, MCX-SX and USE) and banks.......

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Assocham calls for 0.5 pc cut in repo rate, 1 pc CRR slash

…."A one percentage point reduction in CRR could release Rs 56,000 crore and help fund viable projects held up due to liquidity crunch,"….

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Reduction of bank branch audits—a right step

....A report in a leading business newspaper titled ‘CAs lobby against RBI plan to reduce audits’ mentions that the Reserve Bank of India (RBI) is likely to scrap the ‘branch audits’ for PSU banks. This is a long overdue move and should be welcomed. Branch audits have lost their relevance in the age of technology. Core banking ensures that routine checks like interest calculations, branch transfers, credits, etc, are captured at a centralised place. Credit decisions are also getting centralised. Thus, branch audits become totally redundant........

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'Online lottery' leaves man poorer by Rs 51 lakh

... Mishra received a third email, this time from a person claiming to be a Reserve Bank of India (RBI) employee. A woman also spoke to him over the phone and told him that his winnings had reached India, but as his account did not have the cash limit of Rs 5 crore, the money could not be deposited.......

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Difficult months ahead, growth could fall to below 7%: Pranab

Warning that the months ahead are difficult, finance minister Pranab Mukherjee on Tuesday said the growth rate could fall below 7% in the current financial year from 8.5% a year ago...........

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RBI remains concerned with incipient inflation: Alexander Treves

……………..While inflation is likely to ease going forward, not least due to the base effect, the RBI remains concerned by incipient inflationary pressures in the economy. Most market participants expect the RBI to cut rates during 2012; the key questions are the pace and extent of easing.

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Economic expansion at 7%: Khullar

……Analysts say the government and the RBI, unlike during the 2008-09 crisis, do not have much room to go for expansionary kind of policies. This is because the government’s fiscal deficit has widened, and there are upside risks to inflation. Food inflation which has given way to deflation in the last two weeks of December is seasonal and none is sure if would not rise again………

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Should RBI cut interest rates?

….I do rule out possibilities of a cut in the repo rate in the upcoming RBI policy next week. Start of repo rate cuts from Q2 2012 is my base case expectation. However, I acknowledge that the chances of the easing cycle starting in March have increased significantly of late…….

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Expect rates to stay steady

There is no doubt that the Reserve Bank will keep interest rates on hold this week, and no doubt that this will be the right decision. The combination of rising inflation and sluggish economic growth mitigates against a move in either direction, as does the uncertainty stemming from the sovereign debt crisis in Europe, SA’s main trading partner. There has been some recent evidence that the domestic economy is faring a little better — manufacturing output is picking up, for instance. But retail sales have slowed, while growth in investment and borrowing by the private sector is muted, showing that confidence in the economy is still weak. Overall output is expected to remain well below its potential, with many analysts now predicting tepid economic growth of less than 3% this year, slower than last year’s expected growth rate of about 3%. In fact, many believe the economy will not grow much more than 2,5% this year, a change from the previous prevailing view that growth would accelerate. This means it would be surprising if the Bank does not revise its November growth forecasts downward for this year and next, which were 3,2% and 4,2% respectively. It is clear that inflation is likely to remain outside the 3%-6% official target range in the coming months, after breaching the upper limit in November. But price increases are mainly being driven by factors beyond the control of interest rates, such as food and fuel, so a rate hike is definitely not warranted.  Keeping interest rates steady in this environment is the appropriate response. In fact, Fitch Ratings gave the Bank a big thumbs-up when it revised its outlook for SA’s credit rating from stable to negative late last week.  It said the Bank had successfully "managed inflation down" over the past decade, making its credibility an important strength for SA’s overall macroeconomic framework. Fitch indicated that higher inflation was not a problem, at least not at this point. The comments are in line with the view that few will criticise the Bank for keeping interest rates steady this year, even with inflation temporarily outside its target range.

Business Today

Limits to growth in India, China

....To the central bank, that datum will appear a fitting testimony to the success of its policy, of persistent increases in interest rates. The falling rate may tempt it to stay its hand on further increases. But for the central bank, the victory will appear to be a hollow one, if it were to cast an eye beyond its immediate mandate for price control, to the overall impact rising rates have had on growth itself...........

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Rush of FMPs before rates drop

With interest rates near peak and expectation of interest rates going south, mutual fund houses are making a beeline with new fixed maturity plans (FMPs) offerings to attract investments...........

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RBI allows commodity hedging, but not in gold, silver, platinum

……"It has now been decided to permit all AD Category-I banks to grant permission to companies to hedge the price risk in respect of any commodity (except gold, silver, platinum) in the international commodity exchanges/markets as specified under the delegated route," the Reserve Bank said in a circular……..

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Loans still for the asking

.....The educational loans outstanding at Rs 27,709 crore by end-March 2009, increased to Rs 42,808 crore as at end-March 2011, according to RBI data. This had further surged to Rs 48,965 crore by October 2011, a 17 per cent year-on-year growth in disbursals at a time when disbursals to most other priority sectors have been largely subdued......

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Infra proj in emerging economies perceived vulnerable to risks

Mumbai: Infrastructure projects in emerging economies like India are perceived as vulnerable to risks and efforts must be made to introduce greater clarity in policy to reassure investors, the Reserve Bank has said. In the absence of proper risk mitigation mechanisms, the costs of infrastructure projects tend to increase and such high level of risks cannot be traded off against high returns, RBI Deputy Governor H R Khan said at the recent international conference on 'Frontiers of Infrastructure Finance'. Khan's speech was made available on the official RBI website on Monday. He said, "Infrastructure projects in developing countries like India are perceived as highly vulnerable to risks which constrains financing. "The aim of the policy makers should be to reduce perceived risks by introducing greater policy clarity and, at the same time, providing an environment that will reassure investors." Khan said some of the notable risks that need to be reckoned with arise during the period of construction, leading to time and cost over-runs. They also included operational risks and market risks besides interest rate, foreign exchange, payment, regulatory and political risks. The Planning Commission has pegged investment of USD 1 trillion in the infrastructure sector during the 12th Five Year Plan period that will commence from April, of which half is targeted to come from private sector. Khan said the government and the RBI have taken a number of steps to promote funding in the infrastructure sector. They include enhancement of exposure norms, introduction of Credit Default Swaps (CDS) and liberalisation of the policy with regard to external commercial borrowings. He added, however, that some more steps are necessary to increase fund flow to the sector -- making infrastructure projects commercially viable, greater participation of state governments, improving efficiency of corporate bond markets and enhancing sovereign credit rating ceiling. Khan said simplification of procedures by enabling single window clearance would also encourage funds in the sector. He said, "Funding is the major problem for infrastructure financing and there are other issues which aggravate the problems of raising funds. These include legal disputes regarding land acquisition, delay in getting other clearances (leading to time and cost overruns) and linkages (coal, power, water) among others. "It is felt that in respect of mega-projects, beyond certain cut-off point, single window clearance approach could cut down the implementation period."

Zee News

Infra project appraisal needs focused attention, says RBI Deputy Governor

....Infrastructure projects involve huge financing requirements, most of which are met by banks and other financial institutions directly and indirectly. Thus, it is very important to make the project commercially viable to ensure regular servicing of the loan.........

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HITGUJ on VITALINFO

 

Investors need to lower return on capital expectations: RBI

Hyderabad: Indian bourses have started to display positive signs, but investors need to scale down expectations of return on their capital to avoid creating imbalances in the system that will result in financial instability, RBI Deputy Governor K C Chakrabarty said on Monday. "People who are trying to invest in India, who are investors, they have to scale back their expected return on capital otherwise there will be imbalance and it will create more problems," Chakrabarty told reporters on the sidelines of a function at the Jawaharlal Nehru Institute of Banking and Finance here. "... Every day the Sensex cannot give a 30 percent return on equity. There has to be a relationship between debt and equity. But when the overall debt comes down, return on equity has to also come down," he said. Replying to a query on the liquidity position in the country, the RBI deputy chief said the central bank is happy with the situation. The apex bank has increased key policy rates 13 times since March, 2010, to tame high inflation. However, it took a pause on the hawkish monetary stance at its policy review last month as inflation started cooling down. Chakrabarty refused to answer requires related to inflation and rupee depreciation against the US dollar, saying these will be answered at the RBI's forthcoming monetary policy review on January 24. The Reserve Bank of India official said there are two fundamental imbalances all over the world that need to be resolved to avoid financial instability. Explaining the imbalances in the financial system, he said one is the cost of capital and the second is that in any economy, the rich must save and the poor must borrow. "The second issue is that in any society which has to develop, which has to prosper, it is the rich (that) must save and the poor must borrow. Today, the world-over, economies are such that the rich borrow and poor save. If the rich borrow, it becomes inefficiency. If the poor borrow, it becomes efficient and more productive," he said. According to him, India does not contribute to any such imbalance.

Zee News

RBI happy with liquidity situation, says Chakrabarty

Hyderabad, Jan. 16: In what could be an indication to the policy stance of the Reserve Bank of India to be announced next week, the Deputy Governor, Dr K.C. Chakrabarty, said the apex bank is happy with the prevailing liquidity situation. He was responding to queries of newspersons after delivering a lecture at the Jawaharlal Nehru Institute for Development Banking here on Monday. Dr Chakrabarty, however, parried all other questions relating to inflation and policy-related issues by saying they would be answered in the policy review scheduled for January 24. After hiking key policy rates consecutively for 13 times since March 2010, the RBI had softened its stance last month and took a pause from hiking policy rates as inflation started decreasing. On the global economic scenario, Mr Chakrabarty said the cost of capital and the savings of the rich to facilitate borrowings by the poor should be properly handled for financial stability. Earlier, while delivering a talk on ‘Crisis Management in Interconnected Markets', he said there were important lessons to be learnt from each crisis, adding: “We can but be alert and flexible to evolving risks.” In India, an early intervention system based on monitoring of capital adequacy, non-performing assets and return on assets had existed for a long time, he added.

HBL

Return on capital may slide, says RBI

..... “When the rich borrow, the money is utilised for consumption and speculative purpose,”.........

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Importance of getting product design right to begin with

..... National Stock Exchange of India Ltd’s (NSE) decision to appoint Shyamala Gopinath on its board as an independent director has created the proverbial storm in a teacup. Gopinath retired as the Deputy Governor of RBI in June, and the allegation appears to be that a regulatory watchdog is now joining the ranks of a regulated entity......

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Why the rupee’s ride may only get rougher from now on

..... With the European crisis far from over, the RBI will have to retain ammunition for the first half of the year or more till foreign investors regain their risk-appetite and start investing in India. We also have to give our exporters enough time to rejig their operations to take advantage of the currency’s depreciation. In view of all this, it would be foolhardy to believe that the worst is over for the rupee. The macro numbers don’t support that view.

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Look at mfg goods inflation before reducing rates: PMEAC to RBI

New Delhi: Sounding a note of caution, the Prime Minister's economic advisory panel on Monday said RBI should take into account inflation of manufactured goods, which has shown only marginal decline, while deciding to lower policy rates at its monetary review next week. "The Reserve Bank, while framing its monetary policy, will have to take into account not only the decline in food inflation and the headline inflation, but also factor in the manufactured inflation," Chairman of the Prime Minister's Economic Advisory Council, C Rangarajan said. His comments came after headline inflation, as measured by Wholesale Price Index (WPI), fell to a two-year low of 7.47 percent in December, from 9.11 percent in the previous month. Rangarajan said more steps are required to further moderate the inflation. "The decline in headline inflation is mainly on account of the fall in food inflation. However, the decline is very small ... Further steps will be required (to control inflation)," he said, without giving more details. As per the official data, prices of food items rose at a lower rate of 0.74 percent in December, compared to 8.54 percent expansion in the previous month. However, inflationary pressure continued in manufactured items, which which have a weight of around 65 percent in the WPI basket. Prices of manufactured products, went up by 7.41 percent year-on-year in December, as against 7.70 percent in the previous month. Earlier in the day, Finance Minister Pranab Mukherjee also said that inflation of manufactured goods continued to be a matter of concern but hoped that overall inflation would come down to 6-7 percent by March end. "The manufactured inflation and inflation in the power group of items have also declined though only marginally, therefore, continued to be a cause of concern," Mukherjee said. RBI is scheduled to announce its third quarterly economic policy review on January 24. Barring December 2011, headline inflation had been above the 8 percent mark since January 2010, while it was above 9 percent since December of the same year. The apex bank has already hiked key policy rates 13 times since March, 2010, to tame inflation. However, it went for a pause in rate hikes in November and hinted at loosening the tight monetary policy in future if inflation moderates. India Inc has said the string of rate hikes, which have raised the cost of borrowing, has acted as a dampener to fresh investment and hindered growth. 

Zee News

Lower inflation to give RBI leeway for relaxing tight policy: Montek

New Delhi: Declining inflation will provide more flexibility to the Reserve Bank to ease tight monetary stance for stimulating economic growth, said Planning Commission Deputy Chairman Montek Singh Ahluwalia. "..people were earlier saying inflation was a big problem and was the reason for tightening of monetary policy. Now (with easing of inflation) RBI will have more flexibility for stimulating Gross Domestic Product (GDP) growth," Ahluwalia told reporters here. Headline inflation fell to a two-year low of 7.47 percent in December 2011 on cheaper food items, a factor which may prompt RBI to cut policy rates in the upcoming review on January 24. Inflation, as measured by Wholesale Price Index (WPI), had stood at 9.11 per cent in November. It was 9.45 percent in the December 2010. The inflation has been above the 8 percent mark since January 2010, while it has remained above 9 percent since December of the same year. The apex bank has hiked key policy rates 13 times since March, 2010, to tame inflation. RBI has, however, paused rate hikes since November and has hinted that it may start easing its tight monetary policy if inflation falls. It had projected inflation to fall to 7 percent by March this year. India Inc has said the string of rate hikes, which have raised the cost of borrowing, have acted as a dampener to fresh investment and hindered growth.  The economic growth in July-September period of 2011-12 stood at 6.9 percent, the lowest in over two years. Ahluwalia said there was some pressure on inflation but it would further come down by March. 

Zee News

Infuse liquidity via open mkt ops, not CRR cut: Rangarajan

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The RBI should not wait; it must cut CRR and rates now

As inflation shows signs of easing, the Reserve Bank of India will have to have a very strong reason to tread cautiously on rate cuts. The economy is still slowing, and if the RBI does not act quickly the danger of a free fall is not ruled out.............

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Stubborn core inflation may defer rate cut

.... “Excessive usage of OMOs to infuse liquidity into the system can be construed as monetisation of the deficit. We feel RBI should go for a judicious mix of a CRR cut and OMOs. We expect a cut of 50 basis points in the CRR in the January policy review,”.....

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stagflation risks again

..... In India, too, the central bank is unlikely to engage in any significant and early monetary policy easing, given ever-present inflation risks from global factors and unproductive and wasteful government spending locally. Expectations that economic growth would hold above 7% this year and next in India are more likely to be disappointed than met. Much rejoicing over recent buoyant data is too premature.......

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Inflation : Who said what.........

Details

With 7.47% inflation, Subbarao shouldn’t miss the bus on rate cuts

........ If the RBI waits for a more sustained drop in inflation, it might never be able to cut rates. This is probably as good as it gets on the inflation front — and the RBI shouldn’t lose this opportunity............

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IDBI Bank launches India's first online Retail G-Sec Portal

.....RBI during various policy pronouncements has been emphasizing the need for banks to take necessary steps for providing the infrastructure for retail investors to make investments in Government bonds....

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Banks stop giving term loans to poor women-members of self-help groups

....The circular has also asked the National Bank for Agriculture and Rural Development (Nabard) to convey the new guidelines on stopping term loans to SHGs to all bank branches immediately.......

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A spirited marathon for myriad causes



The RBI Governor, Dr D. Subbarao, at the Mumbai Marathon on Sunday  



Mumbai, Jan.15: “Run, Mumbai run,” echoed on the streets of Mumbai as hundreds of onlookers cheered the spirited runners at the Standard Chartered Mumbai Marathon 2012. January 15 was not just another lazy Sunday in Mumbai. Thousands of people left their homes at wee hours all geared up to participate in the marathon. Warm-up sessions had started one hour ahead of the run. If it was a rigorous exercise for the serious runner, it meant rehearsals and make-up sessions for the participants strolling along the route promoting their beliefs. Except the serious runners, most participants dressed up in colourful, funny yet symbolic outfits to promote causes that were close to their heart. We were a part of this crowd, panting and puffing our way through the runners trying to get a glimpse of their outfits. Matching their pace and spirit was not difficult as we got sucked right in the middle of their campaigns protecting causes such as the girl child and Mother Earth, to name a few.  While some were dressed as Anna Hazare, many had embarked on a patriotic voyage. Twenty-seven-year old Anshul Jain, an advocate by profession, was dressed up in a Gandhi topi, with two steel glasses covering his ears and other utensils strung together. “This look signifies my support to the Anna Hazare cause. I want his approach to be considered by the Government,” said Jain, who has been winning a costume ‘run-in' prize since the last three years. This year he won a sum of Rs 30,000. To promote rural banking services, employees of Union Bank of India had dressed up as carrots, leaves and mobile phones. “We want to spread awareness about the reach of rural banking. It has been a great experience,” said Ms Richa Dodhi, from the bank.  Among the hundreds of NGOs, Toybank had a large number of participants. Dressed in clown outfits and a train costume, the participants were handing out square yellow paper boxes to the onlookers encouraging them to donate toys. Celebrities like John Abraham, Milind Soman, Anil Ambani, Anand Mahindra and many more were also seen running at the marathon.  Kenya's Laban Moiben and Ethiopian Netsanet Abeyo bagged the top honours in men's and women's categories respectively. Moiben completed the marathon with a timing of 2 hours-10 minutes-48 seconds while Abeyo finished the run in 2:26:12. 

HBL

Twists & turns in policy changes – S.S.Tarapore

.....The lack of distinction between interest rates on rupee and foreign currency deposits was so deeply ingrained in the system that it took Dr Rangarajan more than three years to correct this aberration. In 1985, different interest rates were prescribed for each foreign currency with a small premium above interest rates in international markets............

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VITALINFO - Information highway...........

Banks stepping up presence on social networking sites

With almost half of the country's population below 30 years of age, banks are gradually stepping up their presence in the virtual world, connecting with current and potential customers through social networking Web sites, especially Facebook.........................

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Accounts can not be closed for non-compliance of KYC norms without notice

NEW DELHI: A Delhi consumer forum has ruled that a bank closing its customer's account without serving him notice seeking his various particulars as per the banking sector's Know-Your-Customer (KYC) norms, is liable to be held guilty of rendering deficient service. Delhi's Central District Consumer Disputes Redressal Forum, headed by its president B B Chaudhary gave the ruling while holding Karol Bagh branch of the State Bank of Bikaner and Jaipur guilty of rendering deficient service to one of its customers, whose bank account it had closed without serving a due notice to him, seeking his particulars. It also asked the bank to pay Rs 15,000 as compensation within 30 days to complainant R N Prabhakar, a lawyer, for causing "harassment, pain and mental agony" to him. "We hold that the act of the bank amounts deficiency in service. It led to harassment, pain and mental agony to the complainant," the forum said. The forum said the bank, itself, did not follow the RBI guidelines, published in a news daily, on the KYC by closing the account of the lawyer on its own. Rather, it cleared two cheques of the complainant before closing his accounts without giving him a notice, it said. "It was not appropriate on its part to close the account or not to honour the cheque of the complainant by taking shelter under the public notice," it said. Prabhakar, in his complaint, had alleged that the bank dishonoured a cheque issued by him in favour of Airtel without any valid reason. He also also sought that his complaint be treated as a public interest litigation.

ET

CAs lobby against RBI plan to reduce audits

RBI may allow state-run banks to stop branch audits, a move that could save costs

New Delhi: Chartered accountants (CAs) are lobbying hard to protect a source of income that’s at risk of drying up as the Reserve Bank of India (RBI) may allow state-run banks to stop branch audits, a move that could save costs. Banks are looking for savings as a slowing economy acts as a dampener on business. Such branch audits are a routine stream of revenue for small firms and individual accountants. RBI governor D. Subbarao told CAs on 16 December that they should not rely on work that doesn’t add value. “With concepts like core banking system and centralized record keeping, the relevance of the audit of branches of public sector banks (PSBs) has significantly declined,” he told the Institute of Chartered Accountants of India (Icai) in Mumbai. “These banks have represented to RBI that the audit of banks’ branches should be reduced. There is merit in this suggestion, since currently the cost of audit of PSBs is significantly higher than the cost of audit of comparable private sector banks.”  Subbarao also acknowledged that Icai has been “resisting this because it would mean a reduction in work for its members”. RBI has asked PSBs to reduce branch audits by at least 25% and constituted a working group of bank officials toward this end. CAs are trying to persuade RBI against imposing such a directive. In late December, they even asked the central bank to allow them to carry out branch audits of private sector banks as well. The Icai central council held an emergency meeting on Wednesday to discuss the matter, said G. Ramaswamy, president of the body. Icai representatives will meet RBI officials on 16 January to make a case for auditing all branches and advances. “Although core banking solutions for public sector banks are sophisticated and technologically sound, there are issues such as maintenance of records, human interventions, etc., which will need auditors’ involvement, and that is what Icai will represent itself on in the meeting with the working group formed by RBI for this purpose,” Ramaswamy said. Core banking refers to retail and small business customers handled through centralized data centres and, therefore, more automated than earlier. The move, if implemented, may come as the second blow that India’s 180,000 CAs have faced in the past month. On 23 December, the finance ministry directed each state-run bank to create a credit approval panel comprising only of bank officials for approving large-value loans, thereby bypassing CAs. Currently, any loan above Rs. 100 crore has to be approved by a management panel, which comprises bank officials, CAs, government  and  RBI  representatives.“ So far, all credit proposals that are beyond the sanctioning power of the chairman go to the management committee. We have asked banks to create a level of credit approval committee, which comprises only officials of banks,” said a senior finance ministry official, who did not wish to be identified.  An Icai council member who did not want to be identified, said, “Icai will make a representation to RBI that in the larger interest of corporate governance, larger number of advances sanctioned by PSBs should be audited. The move to limit branch auditing may keep advances up to several thousand crore rupees out of the ambit of auditing.” Another senior Icai member who did not want to be identified, said, “RBI is taking this step in the name of cost saving, but this may trigger frauds and fudging of data.” RBI officials were not immediately available for comment.

Mint

Adopting Basel III

The editorial “Bankrolling the banks” (Business Line, January 14), makes a cautious assessment of the state of affairs prevailing in Indian banks, and their preparedness for the proposed Basel III, to be implemented in a specified timeframe from January 1, 2013, to March 31, 2017. By and large, banks were least affected even in the most adverse conditions due to sound fundamentals, and yet, when it comes to critical issues such as raising capital for business expansion, ensuring regulatory compliance and containing non-performing assets, they have always found it challenging. No business is without risks, and obviously banks, as commercial entities, cannot be an exception. But a high quantum of NPAs is worrying. Capital has become an increasingly scarce commodity; raising capital, especially for public sector banks, will become the biggest challenge. It is estimated that PSBs will need an additional capital of Rs 5 lakh crore in the next five years for implementation of new norms and to sustain a growth of 20 per cent per annum. This is an uphill task for the government. The RBI, as a market regulator, cannot ignore concerns regarding the proposed implementation schedule for Basel III. Given the background that the banks are in, the RBI has a greater role to play in ensuring their smooth migration to Basel III. The idea of having a capital conservation buffer proposed in Basel III is a welcome move, aimed at maintaining renewed stability of the financial system.

S. Umashankar, Nagpur (HBL)

Banks pay interest for delayed credit/refunds of NEFT transactions

.... the Reserve Bank of India (RBI) had issued some guidelines for banks in 2010. According to these, banks are required to pay a penal interest at the current RBI’s repo rate plus 2% for the delayed period, or until the date of refund, as per the case. At present, the repo rate is 8.5%, so you should get 10.50% as penal interest on any delay.....

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Why RBI is not in a hurry to issue new bank licences

In the Union Budget 0f 2010- 11 the Honorable Finance Minister had announced that additional banking licenses would be given by RBI to private sector players inclusive of NBFCs. This was ostensibly to further financial inclusion and also to improve Indian Banking systems size & sophistication. This had set the capital markets on fire with a lot of conjecturing as to who would be the lucky few. The access to low cost current account & savings accounts ( CASA) and ability to offer all financial products under one roof (Universal Banking) attractions for NBFCs to rush to seek banking licenses. It was also expected that RBI would give new licenses to private players very soon. However the scenario on the ground reveals a totally different picture. Neither is RBI in a hurry to issue fresh licenses nor is there a mad rush by many NBFCs to get into commercial banking. The reasons are as outlined below: Restricted Freedom Due To Banking Regulations: RBI rules are stringent for commercial banks as they are the visible face of the Indian Financial system. Another reason is the fact that commercial banks are primarily custodians of public money. RBI places restrictions on commercial banks in their lending operations. Out of Rs. 100 taken in as deposits approximately Rs. 30 has to be set apart as statutory requirements towards Cash Reserve Ratio ( CRR) and Statutory Liquidity Ratio (SLR). This leaves the Banks Rs. 70/- to lend. Out of this Rs. 70/- forty percent has to be statutorily lent towards priority sector as defined by RBI. That essentially leaves banks with Rs. 42/- to lend as per their own discretion. Many NBFCs would definitely restrictive to say the least. NBFCs seeking a banking license are expected to have huge capital requirements. Further Banks have to invest large funds in fixed assets and information technology primarily to facilitate financial inclusion, risk management anti money laundering, etc. These huge capital expenditures increase the payback period for the investments made. Also banking as a business model is far more people, process and product driven than a simple NBFC model. For example in order to adopt Universal banking the staff needs to be multi skilled in banking functions. Thus the operating expenses would be substantially higher, which in turn would reduce the profitability of operations. Also there ownership and voting rights. Current stipulations cap voting rights at 10% unless with specific approval of RBI. Thus in light of all these restrictions, it is clear that commercial banking is a far more regulated and complicated business model. This explains the lukewarm response of many NBFCs. Past Experience explains RBI's cautious approach At the same time it is clear that RBI is in no hurry to issue new licenses. The last license was given in 2004. However since then, India has changed a lot and the world has changed a lot. More importantly the world view on Banks has changed a lot. Also RBI has to take into account the past experience of giving licenses to new private players. licenses to nine players. Post 2001, RBI further gave banking licenses to Kotak Mahindra and es bank Of these four do not survive today. Global Trust Bank ( GTB) has been merged with Oriental bank of Commerce (OBC), Times Bank was merged with HDFC, Bank Of Punjab with Centurion Bank which itself has been merged with HDFC Bank. Thus out of eleven new banks, four have failed ( a failure ratio of above 35%). A key lesson of the recent financial crisis is that each time a bank fails it erodes the faith in the system which might eventually lead to a systemic collapse. This explains RBI’s reluctance in handing over licenses liberally. In particular the comment on the current world view of the Banks is telling. To say the particular are viewed with suspicion due to their ownership. The last thing that RBI would want is banking failures which would undermine the stability of our financial system. It is thus clear those only serious NBFCs with deep pockets and who have a differential operating model would seek banking licenses. Also RBI would be in no hurry to issue these licenses.In the context of new branch licenses baby steps are far better than giant leaps. This is because it is better for RBI to prepare & prevent than repair and repent.

FPJ

‘Fake note circulation up 300%’

New Delhi: There has been a 300% increase in fake currency transactions in India’s financial channels, a report compiled by the financial intelligence unit (FIU) under the Union finance ministry has said. The report states that during financial year 2011, the agency detected “4,23,539 incidents of fake Indian currency notes with a face value of over Rs 35 crore”. The FIU is notified about such detections, called counterfeit currency transactions (CCRs), by public and private sector banks under provisions of the Prevention of Money laundering Act and these numbered 1,27,781 in the fiscal 2010. The FIU report also revealed that notes of Rs 500 denomination bear the maximum brunt of counterfeiting in the country. “Rs 500 denomination notes constituted the bulk of CCRs at 60.74%,” the report said.

TOI

Fake notes found, man arrested

Officials of the Fort branch of the Reserve Bank of India (RBI) carrying out an audit of old and worn-out currency notes were a surprised lot when they found fake currency notes totalling over Rs3.88 lakh had been deposited with the bank between September 2010 and June 2011. Following the incident, the MRA Marg police on Sunday arrested a man, Said-ul alias Aslam Suratali Shaikh, a Jharkhand native living at Pydhonie. Another significant fact was that small denomination notes were also deposited in the bank, which is very rare, said the police. According to the police, it was during an audit of the currency notes that the RBI officials learnt of the high number of fake notes being deposited in the bank, which the vigilance department confirmed were deposited on various occasions between September 2010 and June last. Interestingly, the fake notes were deposited in the department that checks and exchanges torn and unusable notes.

DNA