Friday, January 27, 2012

Five principles of financial regulation for stability in 2012

..... The focus of his presentation the creation of a stable financial market in 2012 got me thinking about the kind of regulation that will be required to achieve that objective.  It also reminded me of insights I recently came across from one Usha Thorat, director of the Centre for Advanced Financial Research and Learning in Mumbai and a former Deputy Governor of the Reserve Bank of India.....

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Govt may introduce Micro-finance Bill in Budget Session

The government is likely to introduce a Bill that seeks to make it mandatory for all micro-finance institutions to be registered with the Reserve Bank of India in the Budget Session of Parliament. The Finance Ministry has sent the draft Bill to the Law Ministry for approval and will subsequently seek Cabinet's nod, official sources said............

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RBI seeks power to regulate all subsidiaries of banks

.... "Banks have forayed into insurance, broking, mutual funds, private equity, and have become complex and large financial conglomerates. If the subsidiary fails, it can dent banks' profitability and erode capital. To avoid such a situation, RBI wants to have supervisory powers,".....

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India can leapfrog cheques to move straight into electronic banking

..... Electronic payments would spell major gains. For banks trying to lower branch-banking costs, by encouraging customers to avail of internet banking; for trade and commerce, for whom instantaneous funds transfer means a huge saving in costs; for tax authorities, who will get a handle on transactions that otherwise are off their radar, and for ordinary citizens who will get speedier service. Replacing cheques with electronic payments will also be environmentally friendly. All the more reason for the RBI and government to join together and publicise the advantages !

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Public sector banks set to 'swipe' in new sale order

...........The government has decided to form a company in which top state-run banks, including State Bank of India, Punjab National Bank, Bank of Baroda, Bank of India, Canara Bank and Union Bank of India, along with National Payments Corporation of India (NPCI), would be stakeholders. This company would buy PoS terminals and deploy these on behalf of the lenders across merchant outlets in the country.................

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Electronic payments


Electronic transactions are making rapid strides as reported in “Bye-bye cheques, hello electronic payments” (Business Line, January 23), thanks to the efforts of our banks and the RBI, who are encouraging Internet transactions and introducing technology to do banking transactions from home.  Internet banking is very popular among retail customers, but unfortunately, the RBI and banks aren't able to persuade most firms and the corporate sector to take up regular transactions online. Banks are equipped with technology, safety mechanisms and security to safeguard transactions and facilitate easy recognition. The only way to move towards paperless transaction is to encourage online transactions by providing incentives and discouraging branch-level transactions. 
- Srinivasa Sarma, Hyderabad (HBL)

Bankers to discuss cyber security

The seminar 'Banking on e-Security - RBI's Gopalakrishna Working Group' is being organised jointly by city-based Cyber Society of India and Indian Overseas Bank (IOB).

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Banking on derivatives

....If hedging price risks expands their scope for financing of agriculture, it is definitely worth relaxing the existing restrictions, subject to the overall capital market exposure limits permitted by the Reserve Bank of India........

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Inflation? Don’t tell us. Govt to stop publishing weekly data

Call it coincidence. But a day after the Reserve Bank of India (RBI) mentioned the ‘i’ word 79 times in its third quarter monetary policy review, the UPA government has decided that it is hearing the word “inflation” a bit too often. Among other things, the Reserve Bank Governor said that the current fall in food inflation is seasonal, and things could worsen later this year. The ‘i’ word was packaged with dollops of advice on reining in subsidies and improving supply to deal with inflation on a long-term basis............

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Has Subbarao put out the welcome mat to inflation?

...... The RBI’s agument that CRR will merely replace the liquidity now being created by lending through repo auctions doesn’t quite hold, since CRR multiplies money exponentially compared to repos auctioned through the liquidity adjustment facility.......

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RBI deploys the wrong instrument : S S Tarapore

One wonders why the RBI decided to relax the cash reserve ratio. Given that the central bank's stance is to increase liquidity, forex purchases would have been the ideal instrument to use...................

As the saying goes, the heart has its reasons. One only fervently hopes that the RBI does not have to rue its decision.

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In defence of the Reserve Bank of India - Mythili Bhusnurmath

..... Today if the RBI has lobbed the ball into the government’s court it is because monetary policy has reached its limits. It is now for the government to do its bit. Going by the number of fiscally irresponsible actions, there is little sign as yet that it has realised the gravity of the situation. It is only appropriate therefore that the RBI has finally stopped mincing words and done some plain speaking, even if it is accused in the process of shirking responsibility and ‘lobbing’ the ball back into the government’s court.

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Has RBI taken the wrong path by letting short-term volatile debt rescue rupee?


.... "RBI is basically signalling Indian banks to learn to manage their profitability by setting their rates on commercial considerations," ......


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TEA not happy with RBI decision

The Tirupur Exporters Association (TEA) has expressed disappointment over the Reserve Bank of India's third quarter review of Monetary Policy, released on Tuesday, which retained the short-term bank rates (repo and reverse repo) at 8.5 per cent and 7.5 per cent, respectively. “With repo and reverse repo maintained at the same level, the interest rates levied by banks on loans are not going to come down. Moreover, the policy did not have any announcement for export sector,” TEA president A. Sakthivel has said. Technocrats like S. Dhananjayan, a senior member of Institute of Chartered Accountants of India, feel that the RBI's decision to reduce the CRR from 6 per cent to 5.5 without bringing down the Repo and Reverse Repo rates would only ease the liquidity problems but not likely to scale down the interest rates. The apex bank's contention was that cut in the CRR, the amount of deposits the banks were required to keep with RBI in cash, could possibly prompt the banks to reduce the interest rate to attract borrowers. Mr. Sakthivel said the expectations of exporters for extension of the 2 per cent interest subvention to knitwear and garment sectors across the board too were not addressed by the RBI.
HBL

RBI empowers banks on end-use of ECB funds

Banks say move streamlines foreign fund-raising, removes administrative flaws

.... “The step shows RBI is now more comfortable in delegating powers to the authorised dealers (banks). The action by the regulator will help in fine-tuning the operational procedure for ECBs,".....

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Thursday, January 26, 2012

Balance growth with equity, inclusiveness, says Speaker


The Lok Sabha Speaker, Ms Meira Kumar; flanked by the Chief Economic Advisor, Mr Kaushik Basu, and the Director, Centre for Advanced Financial Research and Learning, Ms Usha Thorat, releasing a book during the Golden Jubilee celebrations of the Indian Economic Service, in the Capital on Tuesday.

HBL

SB accounts to get interest on end-of-day balance

The Reserve Bank of India (RBI) on Wednesday said that interest rates applicable on the domestic savings bank deposits will be determined on the basis of end-of-day balance in the account. While calculating interest on domestic savings bank deposits, banks are required to apply the uniform rate set by them on end-of-day balance up to Rs.1 lakh.  For any end-of-day balance exceeding Rs.1 lakh, banks could apply the differential rates as fixed by them. “Banks may ensure that interest rate is applied on the end-of-day balances of all domestic savings deposit accounts and no discrimination is made at any of its offices. Prior approval of the Board/Asset Liability Management Committee (if powers are delegated by the Board) may be obtained by a bank while fixing interest rates on such deposits,” the Reserve Bank added.
HBL

RBI monetary policy: It's time to change three gears

We welcome the Reserve Bank of India's growing focus on protecting growth from fighting inflation. Monetary policy should change in three ways. First , policy rates need to cycle down to support growth. Second, RBI needs to reduce the money market liquidity deficit to ease pressure on lending rates instead of adding to it.............. 


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NSMs must for banks with over 50 L transactions

PUDUCHERRY: The Reserve Bank of India (RBI) has made the desktop note sorting machines (NSM) compulsory in all banks, where the average daily receipts exceed Rs 50 lakh, to filter fake notes at the entry point, said S Nandhakumar, Assistant Manager,............

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Govt banks to have more EDs in FY13

Starting next financial year, six large public sector banks, with business of more than Rs 3 lakh crore, are set to get a third executive director each. The finance ministry wants the new executive directors to focus exclusively on human resources and information technology. The government would also appoint a second executive director in small public sector banks that have just one executive director. Currently, except for four government banks, all others have two executive directors. As a result, two dozen executive directors’ posts need to be filled up in the next financial year. The finance ministry has shortlisted around 48 general managers for interviews. General managers who have completed two years at the post and have three years of residual service are eligible for these posts. While the finance ministry had relaxed the eligibility criteria while selecting chairmen and managing directors in public sector banks, the eligibility criteria for the post of executive directors has not been relaxed. The interview panel includes banking secretary in the finance ministry, D K Mittal, Reserve Bank of India (RBI) Deputy Governor Anand Sinha, and former RBI Deputy Governor J Capoor. The interviews would be conducted by the end of this month. Punjab National Bank, Bank of Baroda, Canara Bank, Bank of India, Union Bank of India and Central Bank of India that would get a third executive director each, while smaller banks like United Bank of India, Dena Bank, Bank of Maharashtra and Punjab and Sind Bank are likely to get a second executive director. The finance ministry had recently finalised the candidates for the top posts of public sector banks. Banks that would get new chiefs in the next financial year are Canara Bank, Bank of Baroda, Bank of India, United Bank of India, Dena Bank and Allahabad Bank. The finance ministry has done away with the system of lateral transfers while appointing chiefs of large public sector banks. Earlier, for large banks like Bank of Baroda and Bank of India, a chairman of a smaller bank was given charge. However, this time, executive directors have been promoted and are set to take up the roles of chiefs.
BS

Bulk deposit rates near 10% despite cut in CRR

With banks fearing another cash shortage bank bulk deposit rates moved close to 10 per cent, despite the Reserve Bank of India’s (RBI) half per cent cut in the cash reserve ratio (CRR)...........

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RBI advises govt to stick to fiscal consolidation road-map

RBI Governor D Subbarao said, “If the government goes beyond the (targeted) number and gives details about how the number is going to rollout next year and beyond, I think that would be very credible not only for the RBI but also for all those people who are planning investments in India”..........

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Obtaining Coop Bank Licence won’t be tough: Abhyankar

...... Umbrella Organisation shall be a co-operative society registered under the Multi-State Co-operative Societies Act, 2002 of the Government of India. Even though the Malegam Committee recommendations regarding the Umbrella Organisation if accepted by the RBI, suitable amendments in the Banking Regulation Act 1948 will have to be made, which shall be the duty of the RBI and the Government of India.............

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'Investor-friendly' Sebi to launch ad campaign next month

... In the past, the banking regulator Reserve Bank of India (RBI) has regularly used the print and the electronic media to alert the public about various fictitious schemes and fake currencies......

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RBI lists ways to identify fake notes

CHENNAI: In order to sensitise residents of Kovilambakkam village panchayat in Pallikaranai on counterfeit currency, officials of the Reserve Bank of India visited the area on Monday and conducted a workshop at the panchayat office. Residents, panchayat officials and councillors learnt many basic and simple methods of differentiating genuine and fake currency notes. RBI officials, in co-ordination with the village pan­chayat president A Ranganathan, decided to conduct the workshop after Express reported that Pallikaranai locals feared the inflow of fake currency into their area after three labourers from West Bengal were held by the National Investigation Agency. RBI officials emphasised the importance of knowing the features of genuine currency notes to help identify fake notes as they said that possession and passing on of fake notes not only brings economic loss to both the individual and the country, but also could land a person in prison for three to seven years, with fine. Besides explaining the six basic features of a genuine note that can help differentiate it from a fake note, pamphlets were also distributed. RBI officials said they would be imparting more detailed training to bank officials as well as conducting workshops for staff of petrol bunks and TASMAC outlets.  Several residents who enthusiastically participated in the workshop, said it was the first time they knew that a currency note had such special features. “We never knew or checked notes for all these features. This is the first time we are hearing that genuine and fake notes have so many differences,” said Saraswati, a resident of the area. “Even when we go to banks, we never had the patience to read posters,” another resident, Vikramasimhan, said.
IBN Live

Wednesday, January 25, 2012

Economic prospects improve

…Daring to smile at challenges ahead .....
The RBI Governor, Dr D. Subbarao and his team
Inflationary pressures in the domestic economy have abated for now
The RBI eased the CRR a little beyond market expectations, cutting it by 50 basis points. The liquidity deficit in the banking system has reached approximately 2 per cent of the net demand and time deposits, to an average of Rs1,27,853 crore for January 2012, compared with Rs 42,000 crore in the first fortnight of October 2011, and Rs 84,000 crore in the first fortnight of December 2011. Though the headline IIP index recovered in November to 5.9 per cent, the GDP growth for the fiscal is expected to moderate. The RBI revised its fiscal year projection downwards from 7.6 per cent to 7.0 per cent. The good news, however, is the downward trend in inflation, which fell to 7.47 per cent for the month of December from 9.11 per cent in November. This is the first time since April '11 that the overall inflation has dipped below 9 per cent. All the major components of primary, food and non-food inflation also showed a marked decline and were 3.07 per cent, 0.74 per cent and 1.48 per cent, respectively for the month of December. Manufactured products inflation, however, was still at 7.41 per cent, declining marginally from 7.70 per cent for the month of November. It seems the inflationary pressures in the domestic economy have abated for now. However, for the long term, the government needs to take policy action to improve agricultural productivity and efficient supply chain of agricultural produce so that sufficient capacity is created and the system is not overburdened. The growing consumption demand will keep exerting increasing pressure on food production and inflation spikes and high inflation periods will become more common. Inflationary pressures in the form of high global crude and commodities prices will continue to remain. The credit and deposit growth rates have moderated and banks will be impacted, facing the effects of a slowing down economy and rising NPAs as well as moderating credit offtake and shrinking margins. These might remain muted for another quarter before the regulatory stance shifts to an expansionary monetary policy. We might still have to wait for a quarter before the monetary policy shifts towards stimulating growth but there are increasing signs that things will improve hereafter. Fiscal tightening is, however, in order.
HBL

Subbarao speaks

RBI Governor D. Subbarao lays out the reasons for RBI's monetary stance, and addresses the issues of bad loans and currency hedging.

Mallya meets RBI Deputy Governor

Faced with a severe financial crunch, Kingfisher Airlines' Chairman, Mr Vijay Mallya, met with Dr K.C. Chakrabarty, Deputy Governor, Reserve Bank of India, in Mumbai on Tuesday, sources told Business Line. Bankers, belonging to the lending consortium, said that the meeting could have taken place to request the RBI for its intervention with regard to the airline's account with the banks. One of them said that the company could be “requesting the Central Bank for a special dispensation with regard to classification of the airline's account into a non-performing asset”. The 13-bank consortium, led by State Bank of India, have an exposure of about Rs 7,000 crore to Kingfisher Airlines, of which about Rs 4,000 crore are in the form of term loans. Kingfisher Airlines' account has turned an NPA for most banks of the lending consortium.  “If the account turns NPA, then the process of corporate debt restructure (CDR) comes to a nought, and banks can start taking action on the securities offered, which could have a huge impact for the airline,” said a top official of another lending bank. He also pointed out that since there is a broad consensus in the Union Government on allowing foreign airlines to pick up to 49 per cent equity in domestic carriers, the company could require certain clearances from the RBI. “The company could use the funds from the foreign equity participation to regularise its accounts, in which case all banks' accounts become standard.” In such a scenario, the company could also be requesting the RBI for further restructuring, considering the current turbulence in the aviation sector. Kingfisher Airlines officials were not available for comment.
HBL

Service price index soon

...... The proposed index will not be comprehensive to start with but will include the most important services like insurance, banking, health, telecommunications and aviation, a source privy to the matter said. A senior department of industrial policy and promotion (DIPP) official told FE that an expert committee under the chairmanship of Sriram Taranikanti, Financial Adviser, Insurance Regulatory and Development Authority (IRDA) has been formed. The committee includes senior officials from DIPP, finance ministry, RBI, academicians from Indian Institutes of Management, etc. ......

Service price index soon

RBI could have done more

....The Governor's press statement has clearly brought out why not much comfort can be drawn from the decline in inflation numbers. The stubbornness of core inflation, suppressed inflation in fuel products and the structural nature of the protein component of food inflation have prevented RBI from lowering policy rates. ......

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RBI interest rate unchanged; Rs 32,000 cr infused into economy

The Reserve Bank of India (RBI) today injected Rs 32,000 crore into the system by lowering the Cash Reserve Ratio (CRR) by half-a-percentage point but kept the short-term lending rate unchanged in view of persisting inflationary concerns. “Based on the current inflation trajectory, including consideration of suppressed inflation, it is premature to begin reducing the policy rate,” RBI governor Mr D Subbarao said while unveiling the third quarterly monetary policy review............

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CRR cut will have multiplier effect - K. Kanagasabapathy

......It is heartening to note that the present Governor has taken a similar position as his predecessors and in unmistakable terms has highlighted the similar risks prevailing currently. While normally, after policy interest rate is taken to a peak, RBI allows a pause before reducing the rate, this time around such a pause has to be longer than usual and even if the rate is reduced it should be in baby steps at longer intervals.......

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Is CRR a liquidity or a monetary tool?

.... Milton Friedman famously said, “Money is far too serious to be left to central bankers.” If he had his way, monetary policy would be run through a simple rule with limited intervention from central bankers. However, reality is just the opposite, with the world being increasingly reliant on the wisdom of central bankers to help ride the economic cycles..........

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CRR cut is liquidity action with anti-inflation stance: Subir Gokarn

MUMBAI: Reserve Bank of India Deputy Governor Subir Gokarn said the cash reserve ratio (CRR) cut is a liquidity action while maintaining the anti-inflationary stance.  The RBI cut CRR, the share of deposits banks must hold with the central bank, for banks by 50 basis points to 5.50 per cent on Tuesday to ease tight liquidity, signalling a policy shift towards reviving growth after nearly two years of fighting inflation. With core inflation still stubbornly high, the Reserve Bank of India, as expected, left its policy repo rate unchanged at 8.50 per cent for the second consecutive review.
ET 

Contradictions in policy statement - A.Seshan

.................I have argued over the last decade on the need for a new RBI Act, reflecting all the developments in the financial and monetary sectors since 1934, including the amendment of the Preamble to tag on growth to monetary or price stability. Many other central banks, both in the developed and developing worlds, have done this.............

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CRR cut isn't a govt versus RBI case: Bimal Jalan

...... I think that it's not Reserve Bank versus government. That's not the issue. You take a collective view. One is essentially saying that if the fiscal deficit is higher than what can be tolerated in terms of both inflation and financial stability. Then we have a problem and that needs to be tackled. We should take a view not sort of posing it as two opposite camps......

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Should it have been a CRR cut? – S.S.Tarapore

In a reaction to the monetary policy, economist SS Tarapore said, “ the RBI Policy Statement is an excellent document setting out with elan and style, the risks and opportunities. The relaxation of the CRR is a powerful instrument and one wonders whether the initial step of relaxation should have been the CRR. A better option would have been to undertake gradual forex purchases to prevent an appreciation of the rupee and augment the forex reserves; These operations would have also augmented domestic liquidity.
FPJ

Needed: Bold moves, not baby steps

Corporate India was left wanting for more, following the announcement of a 50-basis-point cut in the cash reserve ratio (CRR) by the Reserve Bank of India (RBI) on Tuesday. At a time when headline inflation has been moderating, most were expecting the central bank to take a firmer stance on growth. What they got instead was what some privately describe as mere “tokenism”.......

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'RBI move to restore growth momentum'

Bangalore, Jan 24: The Bangalore Chamber of Industry and Commerce (BCIC) welcomed the Reserve Bank of India’s monetary policy to cut 50 basis points in CRR, which is expected to infuse Rs 32,000 crore into the system easing the tight liquidity situation in the country.  Welcoming the change, Mr H.V. Harish, Vice-President, BCIC, said, "This CRR cut should bring liquidity back into the system and also bring down costs for industry and hopefully restore the growth momentum which has been lost." He also expected the policy to drive down inflation with lower cost of interest. "We also expect industry to look at capital investment again and that should provide a boost to the capex equipment makers and to the investment climate,” he said in a press release.  Mr N. Venkatakrishnan, Chairman of the Banking and Finance Expert Committee of the Chamber, said: “The RBI has taken a timely step to respond to economic realities and help kick-start activities. The monies released into the banking system will help cool interest rates which is pro-industry measure”.
HBL

RBI to meet bankers to discuss NPA, says no concern for now

MUMBAI: The Reserve Bank on Tuesday said there is no concern about the level of non-performing assets (NPAs) in the banking system and it would soon meet 10 large banks to take stock of the situation. "Whatever (NPA) figure is being reported, we don't find anything to worry. We have done a stress test in the Financial Stability Report and we don't have anything to worry about," deputy governor of RBI K C Chakrabarty said. He added, however, that the central bank would soon meet 10 large banks to ascertain the situation. "Just now, we have no concern. But, we are concerned about how the message is going from the media and analysts (to the public). So, we will discuss with the banks about the NPA issue," Chakrabarty said. Referring to sector specific stress points, he said the central bank is not uncomfortable about lending to any particular sector. "We don't have, as of now, any sector specific concerns. If you analyse, the gross NPA which is 2.66 percent now was 2.8 percent in 2007," he said, adding that the NPA numbers reported in sectors like telecom and power distribution companies (Discom) are minimal compared to total portfolio. "In case of power, the reported NPA is Rs 768 crore out of Rs 2,60,000 crore (of portfolio). So, we don't have any concerns. Even the restructured standard asset is not substantial. That (NPA) has happened not only because of credit squeeze, but due to various other factors related to project implementation," he said. The central bank also clarified that it would not intervene in banks' decision to stop lending to power discoms. "Whether banks (will) continue to lend, or stop lending to discoms and on what basis, it is between state government, banks and discoms. We will not intervene in this matter," RBI Governor D Subbarao said. He quoted instances of letters received from state governments asking for intervention to restart lines of credit discontinued by banks. A recent Crisil report said losses of Discoms (power distribution companies) rose 24 per cent to Rs 27,500 crore between 2006-07 and 2009-10, which could rise to about Rs 35,000 crore in 2010-11 as power tariffs were not revised by state governments along with various other issues. Subbarao also said that he is not comfortable with the idea of converting public carrier Air India's debt into SLR (Statutory Liquidity Ratio) bonds. Banks are struggling to recover Rs 19,000 crore from the ailing national carrier and one of the three proposals floated to restructure includes converting the outstanding debt into Government bonds which could be transfered to the banks' SLR portfolio.
TOI

Policy review, but no word on interest

For the first time the common man has nothing to look forward to in the credit policy though the RBI released Rs. 32,000 crore into the banking system through a half per cent cut in the cash reserve ratio (the cash that banks have to keep as a percentage of their deposits with the RBI) in the 3Q Monetary Policy Review announced by the RBI Governor, Dr D. Subbarao, on Tuesday. All other policy rates were kept unchanged. People were expecting a rate cut so that they would get relief in their home loans and EMIs. But on Tuesday no banker was willing to talk about where interest rates would go. Ms Chanda Kochhar, managing director and CEO of ICICI Bank and India’s most powerful private sector banker, said “the lending rates would depend upon the demand for credit”. Mr K.R. Kamath, chairman and managing director of Punjab National bank, said that they would have to wait and watch how liquidity, credit offtake and deposit growth pan out before deciding on interest rates.
Asian Age

Excessive risk aversion a worry

According to the central bank, lenders were exaggerating company-specific issues and using these as excuses to not lend to particular sectors, sources familiar with the development told Business Standard. RBI Deputy Governors KC Chakrabarty and Anand Sinha would meet officials of 10 large banks to examine the issues related to non-performing assets (NPA).

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RBI to come up with hedging policy for banks in 7-10 days

The Reserve Bank of India (RBI) today said that it would come up with guidelines for banks relating to hedging policy in the next seven to 10 days in order to reduce the impact of volatility in currency on banks. "RBI will come up with policy guidelines relating to hedging in next seven to 10 days, which will ask banks to have a board determined policy on their foreign currency exposure," RBI Governor D Subbarao told reporters after the policy announcement. He, however, said the central bank doesn't want to mandate hedging for all kinds of foreign currency exposure as it doesn't want to micro-manage the banks. "If the banks lend corporates in foreign currency, they shouldn't have any unhedged exposure except natural hedge," Deputy Governor of RBI, Anand Sinha said adding that RBI wants to protect the balance sheets of banks due to any volatility from currency movement. Recently, many corporate houses have reported a huge amount of mark to market losses due to rupee depreciation, which has fallen around 16 percent in the last one year. As per reports, the rupee's depreciation of 9.72 percent against dollar in the third quarter of current financial year is likely to increase Indian Inc's mark to market losses by Rs 15,000 crore in this period.
IBN Live

RBI: It’s up to the Budget now

.... Of course, the RBI has justified the CRR cut by saying it’s a measure to infuse liquidity. But here’s what Deputy Governor Subir Gokarn said in a speech in early December 2011, referring to cuts in CRR and SLR, ‘But, in thinking about these instruments, we must keep in mind that they straddle the divide between liquidity and monetary management, which, at the current juncture, we are intent on maintaining.’....

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India Unexpectedly Cuts Reserve Ratio as BRICs Act on Growth

... While India's inflation, stoked by rupee weakness, is the fastest in the group, it eased to a two-year low last month, giving Governor Duvvuri Subbarao more room to inject cash into a slowing economy.......
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Pranab Mukherjee laudsthe balancing measure

.....“[The Reserve Bank's] announcement should help address the money market liquidity, which had tightened in the past two to three months, while balancing the downside risk on growth and deceleration in moderation of inflation”.....

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RBI asks government to free diesel prices

....“Particularly, as the food subsidy bill is expected to rise, it will be prudent to fully deregulate diesel prices to contain both aggregate demand and the trade deficit,” the RBI said in its third quarterly monetary policy review........

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No better time to invest in bank deposits than now

....“It is advisable for depositors to lock their funds in deposits of one-two-year tenures now. Even if deposits of a five-year tenure fetch similar interest rates, banks typically follow a one-two-year investment bucket and it is a better way to reap higher benefits since five years is too long a period to predict interest rate patterns,”.....

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Cloud in golden lining: Few checks, high risks

....The Reserve Bank of India has raised red flags. In a recent working paper calling for tighter norms for NBFCs, it said: “The higher borrowings of NBFCs, especially from the banking system, raise some concerns about their liquidity position. More so, if such reliance happens to increase further... These concerns will be further accentuated in case the banks’ own liquidity position becomes tight at the time of a crisis or even in a crisis-like situation... More than 68 per cent of the consolidated balance sheets (of NBFCs) constitute borrowings.”......

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Banks ignore RBI security norms

With Reserve Bank of India outlining security norms for bank branches in 2009, Monday’s daylight robbery at Perungudi branch of Bank of Baroda on OMR highlights the lackadaisical attitude of bank officials in adhering to procedures.............

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Tuesday, January 24, 2012

Subbarao faces tight balancing act on interest rates

...... Subbarao’s predecessor Yaga Venugopal Reddy had an interesting view on the point of RBI listening to the finance ministry’s advice. Reddy would say, in his inimitable double-negative sort of way, that an argument need not be negated just because it came from the ministry. However, Reddy also believed action need not always be taken on a particular day just because there is a policy review, and could always be kept for an exact and appropriate time, and any reaction from the central bank must be purely ‘contextual’. It will be interesting to watch which of Reddy’s arguments Subbarao opts for this time.......

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RBI wants banking services to reach remote villages

Kurnool, Jan. 23:  The Reserve Bank of India wants benefits of banking to reach remote villages in the country.  Accordingly, in Andhra Pradesh, it has set a target to reach 6,640 uncovered villages before March 31, according to Mr A. Sambasiva Rao, Regional Director, RBI. Addressing a meeting in connection with his visit to Financial Literacy and Credit Counselling centre here, Mr Rao said that about 89 per cent of villages were covered so far. While commercial banks were in the forefront in achieving the targets, some regional rural banks and private banks needed to pull up their socks. Explaining that the benefits of economic growth were not being distributed equitably among all sections, he said poverty reduction did not just mean improving the income of the poor but other basic needs of the families like education of the children and health should be met. Mr  Rao urged banks to catch the next generation of citizens, now in junior colleges and introduce them to all banking products and enrol them as account holders. Even remote villages and tribal hamlets should produce doctors, engineers and technocrats on par with urban areas. This would happen only when the banks expanded their operations and liberally funded education activities. Once banks operated in remote villages, they would be able to afford support to farmers, especially those in distress and also the self-help groups. Mr Ramsankar Naik, District Collector, and Mr R.N. Dash, General Manager, RBI, among others, participated in the meeting.
HBL

RBI’s Mahapatra seeks greater surveillance of corporate governance

Reserve Bank of India Executive Director Shri Mahapatra calls for greater vigilance in corporate governance at financial institutions to avoid further crises. Shri Mahapatra, the executive director at the Reserve Bank of India, on January 21 said the recurring corporate governance crises in both the developed and developing economies suggests "eternal vigilance" must be exercised at all times. At the Convocation Ceremony of Chetana's Institute of Management & Research in Mumbai, India, Mahapatra said: "Although our banking sector has emerged largely unscathed from the crisis, there is definitely a need to do some introspection as there have been some issues of corporate governance failure here too. The incidents of banks misselling forex derivatives to clients have been well publicised and are one such example. There is therefore a need on the part of banks and financial institutions to be more responsive to their obligations towards the larger public interest." Mahapatra said a study of the governance failures in various institutions during the crisis helps in understanding that the measures and reforms to address the governance failures in one context may not be as effective in another, and that the timing and focus of reforms should reflect the economic and institutional realities of the country concerned.  
http://www.centralbanking.com/central-banking/speech/2140568/rbi-s-mahapatra-seeks-surveillance-corporate-governance

Remove restrictions on farm trade: Y.V.Reddy

Hyderabad, Jan. 23:  Removal of all restrictions on domestic trade in agricultural produce should be done prior to any debate on allowing foreign investment in the farm sector, according to Dr Y. V. Reddy, former governor, Reserve Bank of India. Delivering the Seventh J. Raghotham Reddy Memorial Lecture on ‘Agriculture: Problems and Opportunities' here on Monday, Dr Reddy said the connectivity between rural produce and rising urban consumer demand for food items could be ensured by freeing restrictions. This move would be better than constant rebalancing of interests of farm producers and consumers through a process of ‘continuous political bargaining', he said. As there were no policy reforms in agriculture since 1991, there was a need to empower the States. “Perhaps, the Government of India should vacate its role in agriculture and rural development, except in regard to international trade and research,” he said. In such a scenario, the States would compete for performance, and adopt innovative measures and diversity in approaches. “Such a decentralised approach has been adopted by China recently to manage its agricultural problems,” Dr Reddy said. Going forward, there might be opportunities to export food items to other countries, if advanced countries find it fiscally unsustainable to subsidise agriculture. “The opportunities will be in far more diversified form than now. They can be exploited only if our farmers and the Government are agile and equip themselves to changing composition of demand,” he said. Dr Raghotham Reddy was former vice-chancellor of Acharya N.G. Ranga Agricultural University, Hyderabad.
HBL

RBI Chennai, Kanpur units shredding more soiled currencies

Chennai, Jan 23 : The Reserve Bank of India branches in Chennai and Kanpur were shredding more number of soiled and torn currency notes than the new ones they pump into Tamil Nadu and Uttar Pradesh respectively. "The RBI office in Chennai and Kanpur are shredding more soiled and torn currency notes than anywhere else in the country. The amount of soiled notes shredded in these two places were more than the number of new currency notes issued every year (for the two states)," RBI sources here said today. The trend in Chennai was due to the increasing number of students, industrialists and medical tourists visiting Tamil Nadu. "If you observe, there are over 400 plus engineering colleges in the state and most of them do not accept money through bank channels for admission fee and tuition fees. Especially, colleges which accept donation, decline to accept money through any bank channel, since the details of such transactions would be on record," the sources said. The hosiery hub of Tirupur too witnessed heavy cash transactions among the traders visiting the town for their business. "Many businessmen from Tirupur, Coimbatore come here and exchange soiled currency notes which they get from across the country," they said. Chennai emerging as a much sought-after health care destination too is cited as another reason for the heavy inflow of currency notes. "You can see many people from Assam, West Bengal and other eastern states coming here for medical treatment and use currency and not cards," they said. Similar was the case with Kanpur as the city and surrounding areas housed hundreds of industries, the sources said. RBI was in the process of conducting awareness campaigns about fake currency in areas around the IT Corridor on the city outskirts where migrants labourers were concentrated in view of the recent busting of counterfeit currency racket in the city and union territory of Puducherry. The National Investigation Agency along with the CBCID of Tamil Nadu and Puducherry nabbed three persons in Chennai and Puducherry last week for circulating fake currencies into the market. Technical experts from RBI Chennai will be conducting a similar campaign and awareness meet in Puducherry tomorrow.
MSN News 

Regulators: Holier than thou

........Less then a month after RBI’s board was reconstituted, it issued another press release on 18 October 2011. It announced the appointment of two more directors on RBI’s central board. YH Malegam was reappointed from 7 October 2011 for four years ‘vice Shri H.P. Ranina’ and another director in place of Lakshmi Chand. No explanations. Why does the government believe that RBI cannot function without Mr Malegam as a director? .............

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RBI plan to protect investors

Bhubaneswar : The Reserve Bank of India (RBI) is planning to send its representatives to the districts to create awareness and help potential investors choose the right organisations to invest. The move comes in the wake of a number of fraud cases across the state. In the recent past, the state has seen seven cases, the Balasore chit fund case being the prime example, where money taken from the public has been invested elsewhere, causing huge loss to people. “The RBI has already asked companies doing investment business with the public’s money in the state to register themselves with the national banker. However, the investor should also be clear about the portfolio of such companies and before putting in money, must check the details and ensure that the company is registered with the RBI. The state government, too, has issued orders to this effect at the administrative level,” said Biplab Chakraborty, General Manager of the RBI, Bhubaneswar. Addressing a students’ meet on banking at the Kushagra Institute of Information and Management Science in Bhubaneswar, Chakraborty said there were two types of companies — those that collect investment for their own growth and those that collect investment for investing it with others. The second one needs the RBI’s permission and the investors should demand that the companies show them a copy of the permission letter payment. “We have already started a campaign on the media to make people aware on this, but now we plan to reach out to people at the grassroots,” he said. Sources said the crime branch had registered cases against seven chit fund companies across the state for cheating people of crores of rupees. In the Balasore case, not only civilians, but also police officials were listed as the victims. The kingpin used the money to make a Bollywood film. Speaking at the meet, Samson Moharana, a teacher at the postgraduate department of commerce, Utkal University, said: “Many companies are registering as limited entities under the Companies Act. Making use of loopholes in the law, some of these companies also include collection of money and related business in their activity list. This is also a glaring violation and the local district administration and the police must act to stop such activities to safeguard the investment. In many places, the people are not able to take advantage of the awareness drives and these companies are targeting gullible people.” The state has lately seen more than 20 cheating cases related to ATMs and most of them belonged to a particular public sector bank. Last week, two customers from Paralakhemundi in Gajapati district complained that unauthorised withdrawals of more than Rs 40,000 were made in Haryana. Moharana also said bankers should be aware of the current development scenario, so that the respective banks do not suffer from non-performing assets (NPA). “The permissible NPA level is around 3 per cent around the world. In India, though NPA is shown within 2.5 per cent, in practice, it remains as high as 10 to 15 per cent in many banks,” he said. Chief General Manager of the National Bank for Agriculture and Rural Development K.K. Gupta said that even today, the banking sector was only considering a small fraction of our population, but the professionals should implement innovative ideas for an inclusive growth.
The Telegraph

RBI: Upside risks to inflation warrants careful calibration

" While the expected gradual softening of inflation could suggest the need for easing monetary policy, medium- term inflation risks warrant careful calibration" ..............

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Need to encourage equity flows, widening CAD a worry: RBI

.... "As expectations of quick and robust resolutions to the European sovereign debt crisis diminish, it is all the more important for India to maintain adequate capacity to withstand further external shocks,"....

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BANKING ON GROWTH

BUSINESS HOTSHOTS AWAIT RBI NOD TO LAUNCH BANKS IN BENGAL


CHANDRA Shekhar Ghosh and Purnendu Chatterjee have a common dream. Both want to float a bank and are now eagerly waiting for Reserve Bank of India (RBI) to release the final guidelines on new bank licences. Ghosh is founder and chairman-cummanaging director of the country's leading microfinance company, Bandhan Financial Services. Chatterjee, in turn, is an NRI businessman and chairman of The Chatterjee Group (TCG). Bandhan has been doing the spadework to apply for a banking licence for quite awhile. It plans to reinforce its board by inducting one or two retired bank chief executives, whose banking experience would help the MFI in its preparation for the banking licence. Bandhan's outstanding loan portfolio crossed 3,000 crore in November, 2011. TCG's plans to also establish a bank comes at a time when the new government has promised all support to existing banks in the state for expanding business and improving credit delivery. Bengal has a glorious banking history. State Bank of India (SBI) started its journey here more than two centuries ago. State-run Allahabad Bank, UCO Bank and United Bank of India are headquartered in Kolkata and are important players in the country's banking sphere. Yet, the state suffers from lack of credit delivery in the absence of private capital. Banks' credit-deposit ratio, an indicator to a bank's efficiency in credit delivery, is 62% here, significantly lower than the national average of 74%. Of the state's 9 crore population, about 70% resides in the rural areas.  The number of accounts per branch in the state has risen to 9,866 in 2009-10 from 5,046 in 1980-81 while the number of accounts per 100 adult people has risen to 77 from 40 during the same period. However, a study conducted by RBI said moneylenders were a dominant source of rural lending with about 66.5% cases being financed by village moneylenders at exorbitantly high rates of interest of around 10-20% a month. It also said nearly 40% of the rural population do not have sufficient income to open a bank account even as banks have improved their reach in rural Bengal.
ET

RBI for balancing between risks to growth and inflation

........ However, RBI stated, inflation and expectations of inflation remain high and upside risks emanate from exchange rate pass-through, revisions in administered prices and higher-than-expected government revenue spending. Consequently, it said that monetary actions will need to strike a balance between risks to growth and inflation..........

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Rate cut today? RBI adds riders after hopes raised

... “While in the short run, moderating inflation will provide some space for monetary policy to address growth concerns, in the absence of structural measures to address a range of supply bottlenecks, this will be, at best, temporary respite,”....

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Economic picture as assessed by RBI

 

Govt adding to inflationary pressure: RBI

Mumbai: The Reserve Bank of India has blamed the government for adding to inflationary pressures by living beyond its means and has urged the centre to push for reforms to achieve a turnaround in 2012-13. The central bank’s warning on government’s financial indiscipline comes ahead of polls in five states. Although the government has failed to meet its revenue targets through taxes and disinvestment of public sector undertakings, expenses have got out of hand forcing the centre to twice increase its borrowing. This will force the central bank to strike a balance between risks to growth and inflation, RBI said. Given the central bank’s reiteration of the pressures on inflation it is widely expected that RBI will not cut rates. However,there is a significant section which feels that governor D Subbarao may go for a cut in the cash reserve ratio to release liquidity. The continuing liquidity crunch is evident from daily bank borrowings from RBI. On Monday, the overnight borrowing by banks touched Rs 1,41,000 crore—much higher than RBI’s comfort level of around Rs 60,000 crore. “Expansionary fiscal policy is likely to impact price stability by affecting aggregate demand. Since the fiscal expansion is largely on revenue account and capital spending remains low, it can adversely affect the supply responses needed to lower long-run inflation,” RBI said in its quarterly report on macroeconomic and monetary developments which is released on the eve of its policy review. In its report, RBI said that economists and other forecasters have lowered growth projections for 2011-12 to 7% from 7.6% three months ago. But forecasts for inflation remain unchanged at 8.8% even as the rupee-dollar exchange rate is expected to end the year at 52, sharply lower than 47 projected earlier. Agreeing with the forecasters, RBI said that growth in 2011-12 is moderating more than was expected earlier. “The business climate has weakened. The slack in investment and net external demand may keep the pace of recovery slow in 2012-13,” it said.  RBI has significantly tightened monetary policy since February 2010 with an effective increase of 525 bps in policy rates and a 100 bps increase in CRR. Experts feels that RBI governor D Subbarao may go for a cut in cash reserve ratio to increase liquidity. On Monday, the overnight borrowing by banks touched Rs 1,41,000 crore—much higher than RBI’s comfort level. “The business climate has weakened. The slack in investment and net external demand may keep the pace of recovery slow in 2012-13,” central bank said in its quarterly report.
TOI

Inflation risks persist, says RBI

Monetary actions will need to balance growth risks and inflation'

The Reserve Bank of India (RBI) on Monday warned that inflation risks persisted while growth outlook and business climate had weakened. “The growth outlook has weakened........Inflation and expectations of inflation remain high. Upside risks emanate from exchange rate pass-through, revisions in administered prices and higher-than-expected government revenue spending,” said RBI on the eve of its third quarter monetary policy review on Tuesday. The RBI left interest rates unchanged in its mid-quarter review in December after raising them 13 times between March 2010 and October 2011. While some market participants argued for a rate cut in its third quarter review, others said the central bank is likely to keep policy rates on hold. “Monetary actions will need to strike a balance between risks to growth and inflation,” said RBI. Growth in 2011-12 is moderating more than was expected earlier. The business climate has weakened. The slack in investment and net external demand may keep the pace of recovery slow in 2012-13. However, the RBI hopes that in the short-run, moderating inflation will provide some space for monetary policy to address growth concerns. “This will be, at best, a temporary respite.” The RBI said that agricultural prospects remained encouraging but moderation was visible in industrial activity and some services. “Industrial slackness has emerged as export and domestic demand has decelerated.” Growth in 2011-12 is likely to moderate to below trend, given the external conditions, dampened investment demand and prevailing high level of inflation. The central bank felt that fiscal reforms, including the Direct Taxes Code (DTC) and the Goods and Services Tax (GST) were needed to contain deficits in 2012-13.  “The Central Government's deficit indicators are under duress due to higher subsidies and lower tax collections. Fiscal slippages during 2011-12 may complicate the task of aggregate demand management,” it added. The apex bank said that current account deficit (CAD) risks had amplified as capital flows moderated. Early indicators suggest that the current account came under increased pressure during the third quarter of current financial year. Notwithstanding rupee depreciation, exports decelerated but import demand remained strong, with inelastic demand for oil and rising gold imports. “Upward risks to CAD have become more pronounced with likely moderation of software earnings,” said RBI, adding, “As capital flows also moderated since August 2011, financing pressure on the CAD translated into exchange rate pressures.” Indian rupee had witnessed a sharp fall against the U.S. dollar in this period.
HBL

RBI pitches for reforms to contain fiscal deficit

..... "Prospectively, improvement in fiscal situation in 2012-13 is not only contingent upon the growth performance but also on the progress in implementation of tax and expenditure reforms," RBI said in a macroeconomic review of the economy ahead of third quarter review of monetary policy......

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Subbarao’s hint: Don’t expect the moon when govt is messing up

.... “While in the short run, moderating inflation will provide some space for monetary policy to address growth concerns, in the absence of structural measures to address supply bottlenecks, this will be, at best, a temporary respite. In addition, the expansionary fiscal stance has emerged as an upside risk to inflation.”...........

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IIM Lucknow Manfest 2012 hosts Mahindra Leadership summit

The Mahindra Leadership summit held during IIM Lucknow’s Manfest 2012 featured some of the biggest names from the Indian corporate diaspora. The summit was attended by Mrs. Anita Arjundas, CEO Real Estate and MD Mahindra Lifespace Developers, Mr. R. B. Barman, former Executive Director RBI, Mr. B. Kartik, Sr, Executive with Mahindra Corporate brand management and the man behind Mahindra Rise as well as Mr. Anand Bhatia, Sr. Executive with Ormax and an alumnus of IIM Lucknow..........


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Growth, euro zone fears weigh on RBI

.............The report did not offer any clear indication on what action RBI would take on Tuesday, but its emphasis on keeping the liquidity deficit “within acceptable limits” as a “policy priority” has led a section of analysts to believe that the central bank could go for a cut in banks’ cash reserve ratio (CRR). CRR refers to the proportion of deposits banks need to keep with the central bank. ............

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Restore priority sector status for bank loans to NBFC’s

Industry body ASSOCHAM today called for restoring priority sector status for bank loans to non-banking finance companies (NBFCs) and said core investment companies (CICs) should be permitted to invest ten per cent of the corpus in any scheme, including mutual funds. The Reserve Bank of India’s move to disallowed banks from classifying loans given to NBFCs as priority sector loans will significantly curtail credit flow and in turn curtail growth, it said. A fine line needs to be drawn between genuine NBFCs involved in asset financing business and those specialising in other high-risk segments, said The Associated Chambers of Commerce and Industry of India (ASSOCHAM).  “A substantial part of incremental NBFC lending has flowed to entities like IDFC, PFC, REC, IRFC and IIFCL which are also classified as NBFCs, while the balance has gone to other NBFCs which has perhaps weighed in favour of such a move by the RBI,” said secretary general D.S. Rawat. All asset finance companies in the country have a wider reach and are best placed to lend to unorganised sectors, he said in communication to the Reserve Bank of India. Under existing norms, NBFC-CICs are required to invest at least ten per cent of their investments in money market instruments. However, such CICs which do not have any deposits from the public or loans from banks may be permitted to invest in any scheme of mutual fund, including money market instruments. ASSOCHAM also called for clarity on definition of public funds and sought exemption from registration of their group CIC with the RBI where the group lending as well as borrowing companies have not raised or hold public funds.
India Microfinance

RBI mulls norms for bankers' dealings with loan arrangers

The Reserve Bank of India is believed to be examining the possibility of laying down guidelines for banks when dealing with loan arrangers. This move has to be seen in the context of the Central Bureau of Investigation busting a bribe-for-loans scam in November 2010...............

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Tedious TDS

“Banks pitch for higher tax breaks on bad debt provisioning” (Business Line, January 20) brings up some good ideas. The suggestion of removing TDS at banks, given by the bank chiefs to the Finance Minister during the pre-budget meeting, is a welcome step. If considered, it will bring relief to the lakhs of depositors who had put their hard-earned money in banks for safe returns. Thanks to the changes made to key parameters by the RBI to curb inflation, banks have had to raise the interest rates to maintain their net interest margins. Hence, for the sake of depositors, doing away with TDS can probably keep them happy. Also, in the coming monetary policies to be announced by the RBI, there are indications that some key parameters will be reduced, which will, in turn, affect the interest rate structure of banks. Hence, the Finance Minister should take the suggestion of the bankers and relieve the depositors of the burden of TDS.
- T. N. Rao, Andhra Pradesh (HBL)