A child's guide to monetary policy - S.S.Tarapore

In the run-up to the Reserve Bank of India's (RBI) Mid-Quarter Review of Monetary Policy on September 17, 2012 there would be frenzied discussion as to what the RBI ought to do. Much of the jargon would be totally alien to the Common Person but as the policy changes impinge on the Common Person shorn of the jargon what is needed is a Child's Guide to Monetary Policy…….

………If the duty of the RBI is to crush inflation, the need of the hour is a tighter monetary policy. The RBI has provided yeoman service over the years and it cannot be expected to carry as passengers the non- functioning wings of overall policy……..

Details

Change in corporate debt restructuring norms highlights conflicts; PSU banks bear the burden

....The CDR mechanism has come in for sharp criticism from none other than the Reserve Bank of India. In a recent speech, RBI Deputy Governor KC Chakrabarty said: "While clearly there is cause for concern given the pace and quantum of restructuring over the last few years, the concerns are aggravated by the fact that the restructuring is neither being permitted in a transparent and objective manner by banks.... Nor is it being resorted to in a non-discrimatory manner."......

Read - ET

Finance Ministry says no to Iranian bank's plan to open branch in India

......the matter was examined by Reserve Bank of India, and subsequently, based on RBI's report, a decision was taken by the Finance Ministry not to agree to Parsian Bank's application, sources privy to the development said...........

Read - ET

CDS seminar on 'RBI Annual Report 2011-12'

Thiruvananthapuram, Sep 3: A seminar on 'RBI Annual Report 2011-12' was organised by Centre for Development Studies (CDS) here today. The seminar covered RBI's macroeconomic assessment for 2011-12, outlook on growth, inflation and twin deficits for 2012-13, select medium-term structural issues, seminar coordinator Dr PL Beena said here. It also covered technical assessment on select issues relating to real sector, inflation, money, financial markets, government finances and external sector, working and operations of RBI, such as monetary policy operations, regulation, supervision and financial stability, public debt management and financial accounts of Reserve Bank for 2011-12.

http://news.chennaionline.com/South/CDS-seminar-on--RBI-Annual-Report-2011-12-/78415ff7-b8fb-43f0-bd01-bd181f61bbbd.col

Transactions rise, but rural banks face shortage of manpower

.....Another banker said that an urban branch can make Rs 2 crore business from one or two customers. But a rural banker has to mobilise the same amount of business from several people. He wonders why the Government applies the same yardstick for manpower planning when the profile of business is different and number of accounts is more in rural areas.

Read - HBL

Bank pulled up for ‘deficient documentation’

‘Deficient documentation’ is all too familiar a context cited by banks to delay or even refuse loans to customers. But the shoe was on the other foot, as the Office of the Banking Ombudsman (OBO) for Kerala, Lakshadweep and Mahe ruled in a recent case referred to it.........

Read - HBL

RBI to launch inter-school quiz across India

............The Reserve Bank of India will launch a quiz programme as its new initiative to promote financial literacy at school level across India. “A new initiative in promoting financial literacy among school children, the RBI will launch an All India Inter—School Quiz at school level across the country”, Chief General Manager, RBI, Alpana Killawala, said......

Read - HBL

Awareness, training key to financial inclusion

 

For an open and efficient society, it is essential that every member should have access to public services and goods. Banking being in the nature of a public good, it is essential that the services should be available for the entire population without any discrimination. The poor sections of the society expect that the financial system would take care of their money by keeping it safe and secure. Low transaction costs, minimum paper work, easy access to various products and convenient operating time are some of the factors that can make life easier for the poor. According to experts, commerce with the poor is more viable and profitable if there is a possibility and ability to do business with them. In fact, provision of small, affordable products can work wonders to rope in low-income families into the financial sector. Most of these low-income group families are from the agricultural sector, migratory labourers and seasonal and unskilled workers with a fluctuating income. Banks can play a pivotal role in financial inclusion which will not only be a socially progressive step but a lucrative business proposition as well. Most economists and companies are looking at developing rural markets. However, analysts say that even as Indians are great savers with overall domestic savings rate of 31 per cent, there is very little awareness about financial literacy or credit counselling. At this point in time, policymakers need to understand that even as they have financial plans and programs for masses, there is an urgent need to educate citizens about financial planning. We require financial trainers who can educate people on money management.  Experts are of the opinion that it would be a good idea to include financial planning skills in school education. A survey reveals that the global average age of imparting financial literacy to children is 11.3 years. However, India still has a long way to go to introduce financial education in the school curriculum, in the entire nation, not just in select few elite schools. It is a well-known fact that technology will play a decisive role in promoting financial inclusion and financial literacy. Real time information on markets and products can help in investment decision making which can be enabled through secure technology platforms. A financially aware consumer will always be a help in developing products that are relevant and lead to financial innovation. The seed of financial awareness can be sown by right planning, timing and taking into confidence various stakeholders. It is time the policymakers knew that improving banking facilities’ penetration is only one of the pillars of this strategy, the other key component being making the nation financially literate. 

The Pioneer

Final diagnosis

This refers to the article “An MRI on health of the economy” (Business Line, September 7). The manner in which the precarious position of the economy has been explained goes well with the transparency in policy announcement that the RBI has exhibited in recent years. If the powers that be refuse to listen and make drastic changes in fiscal policy to reduce the obesity of the RBI’s balance-sheet, it could lead to the death of the central bank, and there should be no excuse that the diagnosis was delayed. The concern about dwindling reserves (as percentage of asset size) deserves immediate attention. That the transfer of surplus profit to the Government at Rs 16,010 crore, as percentage of gross income, was lower by 10.4 per cent as compared with 2010-11 is no reason for comfort.

- M.G. Warrier, Mumbai (HBL)

Click to read Warrier's blog

Law of Capital Flows

RBI Governor Duvvuri Subbarao seems to be developing a penchant for one-liners. In a presentation at Cornell University, New York, earlier last week, the RBI chief had this to offer as his contribution to macroeconomics: “Subbarao’s Law of Capital Flows: You never get capital flows in the exact quantity and/or at the precise time you want them.” Considering the widening deficit that India is currently facing, Subbarao was likely talking from personal experience.

FE

‘Low formal credit hampers rural housing’

.......The Executive Director of the Reserve Bank of India G Gopalakrishna said that inadequate information about land holdings posed a challenge in rural housing finance, which explains for low institutional lending and consequently demand for informal lending, i.e. from moneylenders............

Read - Deccan Herald

Focus must be on improving investment climate: RBI Deputy Governor

Maintaining and improving confidence in the India story remains a challenge, according to H.R. Khan, Deputy Governor, Reserve Bank of India. This challenge, however, can be tackled through reduction in the twin deficits — current account deficit and fiscal deficit, improvement in investment climate for both domestic and foreign investors......

Read - HBL

Are banks ready for Basel III?

......We need to find a balance between financial stability and the reality that financial services are needed to support the real economy. This will take time and will need constructive cooperation between the banking industry and the regulators, and will also require the regulators globally to work together to ensure a level playing field. Basel III represents a wholly new era in banking regulation where quick and accurate compliance can be achieved. Unlike Basel II, the implementation of Basel III requires monitoring data every step of the way and with the findings set to become public, the implication is that no further regulation will swiftly follow until the new risk paradigm is reached.

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CRR has outlived utility

....The CRR mechanism had lost its relevance as a monetary tool in post reforms and post-technology (or ‘core banking solutions’) banking. With latest management information system tools, the RBI is able to get the requisite banking figures more accurately at weekly intervals. Data integrity is almost 100 per cent, unlike in the earlier era. SLR (statutory liquidity ratio) is more than adequate as a monetary tool, and also a resource platform for government borrowings. So, why have an additional instrument in this age of data awareness?.....

Read - HBL

Babus in spat

The recent rather public spat between RBI Deputy Governor K.C. Chakrabarty and State Bank of India Chairman Pratip Chaudhuri underlines the turf war that is being waged silently in the higher echelons of the government. While most observers recall that Mr Chaudhuri’s predecessor O.P. Bhatt had also spent his tenure at the SBI waging a war of words with the apex bank over various issues, it may be the first time that the spat has spilled out in public. Some feel that finance ministry babus have been trying to dominate and influence policies that have been proposed by regulators like the RBI and Sebi. And if the current bank regulatory environment is confusing, leading to public rebukes as in this instance, it may have to do with North Block as well.

http://www.asianage.com/columnists/dilli-ka-babu-487

Banks feeling heat from bad loans

.....The situation looks set to worsen during the current financial year. Most PSBs have seen their gross non-performing assets as a percentage of advances increase by anywhere between 50 and 150 basis points between March quarter and June quarter this year. Based on the RBI’s estimate that 15 per cent of restructured assets may actually slip into bad loans, the NPAs from restructured loans may add another 90 basis points (15 per cent of 5.9 per cent) to the gross NPA of public sector banks. This would take their gross NPAs to more than 4.1 per cent for public sector banks by March 2013......

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Banks for easing investment norms to step up lending to infra projects

....Banks have suggested that the RBI should allow them to classify investment in infrastructure bonds of three-five years maturity in the ‘held-to-maturity’ (HTM) category of investment classification. If allowed, they will not be required to make any provision should the bonds depreciate in value.......

Read - HBL

For a graft-free procurement process

The underlying theme of RBI's guidelines on White Label ATMs is financial inclusion

.....Banks will likely prefer installing own ATMs where there is high customer density. It is still early to comment whether WLAs will change the rules of the banking sector but, nevertheless, the RBI’s intentions are to be lauded.

Read - HBL

Cut in bank deposit rates, a bias against depositors

....In the present scenario, when the depositors are sandwiched between rising prices and limited options for higher earnings from savings, banks themselves would be thwarting their low-cost and stable resource base. This will escalate the savings in physical assets and promote current consumption by households which does not augur well for the country. It may be mentioned that banks are facing a slow growth rate in their aggregate deposits which as on August 10 (y-o-y) grew by 14.3 per cent, much less than 18.5 per cent recorded in the similar period last year (Source: RBI WSS, August 31, 2012). Will the RBI look into this and come to the defence of the middle class bank depositors? 

Read - HBL

Chakrabarty Advises Poor Not To Invest in Gold But NOT Ready To Advise PS Banks To Increase Saving Bank Interest Rates

In today's newspaper (7/9/2012), I found three items to be baffling as I was not able to reconcile them.  Three items were : (a) "RBI Advises Against Gold Investment"  (advise is mainly to poor people);  (b) "Gold Prices May Touch Rs35K" (c) An ad by SBI slashing interest rates on fixed deposits.  On first look they may appear to be different news items but a deeper look in reading  of all three items together gives a reflection of bankruptcy of our leaders in giving a direction to the economy and about the goals of RBI and GoI.    Let us analyse these news items.......

Read......

When household savings evaporate …

The Economic Outlook, a publication of the Economic Advisory Council of the Prime Minister (PMEAC), headed by C. Rangarajan, and the Reserve Bank of India’s statutory publication, the Annual Report (2011-12), were released in quick succession.............

......More often than not, it is their lenders’ requirements, and the banks’ own asset-liability positions that guide their deposit rates. The fact that inflation has already eroded the return on bank deposits and a further cut would only worsen their depositors’ plight seems to have escaped the attention of banks. That most depositors have really no alternative makes it worse.

Read - The Hindu

For India's new finance minister, there is no time to waste

....A key part of Chidambaram's strategy to work around the political gridlock has been to forge better ties with the Reserve Bank of India (RBI), which frayed under Mukherjee. The two were at odds over which should come first - fiscal reforms or cutting high interest rates. The ministry and the RBI are now working on a coordinated plan that would see Chidambaram take the first step by unveiling some fiscal reforms, possibly in September. That could give the central bank room to ease interest rates......

Read......

Who are the culprits? The Fake Currency Notes Scandal

....According to the Reserve Bank of India (RBI), in the last six years, approximately Rs.76 crores of fake notes were seized. The RBI speaks only about the seized money. However, a report from a Parliamentary Committee states that fake notes worth Rs. 1, 69, 000 crores are distributed in the market. But in reality, nobody knows the total number of fake notes which are floating around in the market and being passed off as genuine......

Read....

Fake currency threat may not be serious

.......Such scattered reports do not convey an all-India picture. Do we have indications from the Reserve Bank of India (RBI) or the Ministry of Finance that this is a serious threat? Do we have a very high rate of fake currency? Are these efforts being made only by crime syndicates who may or may not have political intentions? The RBI governor in his address on 23 March 2010 said that the "fake notes reported as detected by banks and fake notes found in remittances received by RBI during 2008-09 amounted to 8 per one million notes in circulation". He clarified that this did not include the notes seized by the police. He also said that......

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Getting dirty money out of banking systems

....A clutch of international banks with operations in India were recently in the news for being involved in anti-money laundering (AML) activities, and helping anti-national elements to engage in terrorism and other illegal activities. The RBI is now scrutinising the systems of some of these banks, which have significant operations in India. KYC Norms, suspicious transaction reports, and cash transaction reports are some of aspects under review, according to the finance ministry.......

Read - HBL

Dy mayor blames official for RBI Square name mess

NAGPUR: Deputy mayor Sandip Jadhav has slammed Rahul Warke, development engineer of Nagpur Municipal Corporation (NMC), for holding back vital information from him on RBI Square renaming......

Read - TOI

Time for hard decisions from New Delhi

.... High borrowing costs have contributed to the sharp slowdown in economic growth, but the Reserve Bank of India (RBI) is in no mood to lower interest rates until the government takes concrete steps to curtail wasteful expenditure.....

Read.......

RBI to conduct quiz contests in schools

...........A statement issued by the central bank said that the quiz is being conducted to increase awareness about the history and role of RBI, about banking and finance, economics, current affairs, personalities and events that have contributed to the growth and progress of India over the years. RBI also hopes to build a connect between itself and the young student community and improve financial literacy..............

Read - TOI

PNB - Change in Directorate

Punjab National Bank has informed BSE that Govt. of India, Ministry of Finance, Department of Financial Services vide Notification dated September 06, 2012. in exercise of the powers conferred by clause (c) of sub-section (3) of Section 9 of the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970/1980 read with sub-clause (1) of clause 3 of the Nationalised Banks (Management & Miscellaneous Provisions) Scheme, 1970/1980, has nominated Shri. N. S. Viswanathan, Regional Director Reserve Bank of India, Chennai, as Director on the Board of the Bank with immediate effect and till further orders, in place of Shri. Jasbir Singh. 

Dena Bank - Change in Directorate

Dena Bank has informed BSE that in exercise of the powers conferred by clause (c) of sub-section (3) of Section 9 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 / 1980 read with sub-clause (1) of clause 3 of The Nationalised Banks (Management and Miscellaneous Provisions) scheme, 1970/ 1980, the Central Government vide notification dated September 06, 2012 have nominated Shri V. Vasanthan, Chief General Manager, Reserve Bank of India as Director on the Board of the Bank, in place of Shri N. S. Viswanathan, Director, with immediate effect tram the date of notification and until further orders. As per above notification the term of Shri. N.S. Viswanathan ceases as a Director on the Board of the Bank from September 06, 2012.

RBI sets up panel to strengthen ombudsman scheme

 Reserve Bank of India (RBI) has set up a working committee to find ways for strengthening the banking ombudsman scheme in the country, according to M Sebastian, the apex bank’s Chief General Manager and Banking Ombudsman for Andhra Pradesh. “The committee headed by RBI’s Chief General Manager for Customer Services, which will have its first meeting on Friday at Mumbai, will deliberate the ways and means to empower banking ombudsman system. The committee will submit its recommendations in six months,” Sebastian, also a member of the committee, told media here on Thursday...........

Read....

Should CRR be abolished?

The answer is no; CRR remains a very relevant tool for our monetary system

.......Pratip Chaudhuri has not found significant support from other banking sector heads either. S Raman, CMD of Canara Bank expressed that CRR can not be completely abolished in India considering the high inflation rate. Echoing RBI, ICICI Bank’s non-executive Chairman, KV Kamath too disagreed with the suggestion of the SBI chief and conveyed that "...monetary authority (RBI) in its wisdom uses these tools appropriately and that is what is being done. This is nothing new. India always [has] had a CRR for as long as I can remember and I do not think honestly [that there is] an issue to be made here." Without doubt, CRR is not a new concept in the world......  

Read.........

Retain but reward CRR

..... there are no right or wrong answers here. Retaining CRR is a prudent move to ensure solvency of the realm, especially in times of a crisis. But rewarding banks with a return may not be a bad idea as they are already handicapped with too much pre-emption. Another argument to support this reward can be that if the same amount were to be added as a mandatory second tier of SLR that has to be held to maturity and replenished, banks would still earn a return of around 7% on such paper besides allowing the government to borrow more money. Therefore, going back to paying at least 3-3.5% would be a fair deal.

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CRR Battle Far From Over

......."We need to move towards a situation in which the level of CRR comes down and it is used as an instrument of credit control only in extraordinary circumstances,"...... 

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A policy out of sync

....The central bank can also influence interest rates, by raising or reducing the ‘repo’ and ‘reverse repo’ rates at which banks borrow from or park money with it. Given these far superior monetary policy options — that are, more importantly, culturally in sync with the current regulatory philosophy — the CRR is an anachronism that ought to be dispensed with, or used in “extraordinary circumstances”, as Rangarajan puts it. The CRR made sense in 2007-08, for instance, when the country was inundated by over $100 billion of capital flows, which posed unprecedented challenges to domestic liquidity management. That is hardly the case now, when forex inflows have moderated considerably and firms are battling liquidity constraints. Now that Rangarajan, a former RBI Governor himself, has favoured doing away with the CRR, it is time to make a start. By neither reducing the CRR nor the repo rate, the RBI has made it difficult for banks to bring down their cost of funds, without which they cannot lower their lending rates either. The only way out, then, is to reduce deposit rates, which is what the State Bank of India (SBI) has done and others, too, may follow..

Read - HBL

CRR’s relevance should not be overlooked

.....In his article “An MRI on health of the economy” (Business Line, September 7) noted economist and former RBI Deputy Governor S. S. Tarapore has already explained this aspect. He had shown how payment of interest on CRR would make it ineffective as a monetary policy instrument. There could be situations when interest payments will exceed incremental funds impounded through CRR in a year, and overtime, the spiralling effect will damage the RBI’s balance-sheet. Moreover, the prevailing fiscal position of the Government also warrants not paying interest on CRR balances. If the RBI is saving Rs 21,000 crore as suggested by Chaudhuri, the entire amount will be transferred to the Government as part of the RBI’s profit......

Read - HBL

Reserve Bank of India only deferring the inevitable

.... “We feel that RBI is delaying the inevitable, as eventually interest rates will have to be lowered in the coming months. We expect another 100 bps of repo rate cut before the fiscal ends. A favourable inflation number and steps towards fiscal consolidation, if any, will increase chances of RBI bringing forward interest rate cuts.”

Read - BS

To CRR, or not to?

.....CRR was mainly used to neutralise the inflationary impact of deficit financing during the 1970s, 1980s and 1990s. Accordingly, it was gradually raised from its statutory minimum of three per cent in September 1962 to 15 per cent by July 1989 and again brought down to 4.75 per cent. Now, will the central bank reduce CRR on September 17? Or will it actually set up a committee with a mandate to submit the report after the present governor steps down? The debate continues.

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Coin shortage affects ‘change’ business

.....The supply shortage has also left businessmen paying steep commissions to coin dealers. They now pay twice as much to procure coins as they did nine months ago. "Dealers supply coins at a commission of up to 20% for 5 coins and 16% for 1 and 2 coins. The commission was 9% last year," said P Suresh, co-founder of the Sangeetha chain of restaurants. ..... 

.....An RBI official denied that there was a shortage. "We supply coins in bulk to industry associations through banks or through our regional offices," said Alpana Killawala, Chief General Manager, Department of Communications, RBI.

Read - TOI

Small change, big business

Brokers rule the roost at RBI counters for coins and notes

....Vivek Agarwal, a businessman, complains that many a time when he goes to the bank he is told that there is ‘no stock’; yet, just outside the RBI on the pavement there are umpteen agents with bags full of crisp notes and coins in various denominations. An agent makes anywhere between Rs 200 and Rs 300 per day and some big time players make Rs 600 to Rs 800 per day. For Rs 10 notes totaling Rs 10,000, a sum of Rs 100 is charged as commission. On an average, there are at least 20 – 30 people, including women, on the pavement outside RBI office doing this business.......  

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‘Banks come across fake notes every day’

.....Mr. Ravindranath said that Superintendent of Police Labhu Ram had suggested that a workshop on fake-note detection be organised for police personnel and the public. He said that some RBI officials could be asked to participate in the workshop and educate participants about simple ways of detecting fake notes. Mr. Ravindranath said that his bank was in consultation with the RBI for conducting the workshop. According to some other bankers, fake notes are usually in circulation in bars and restaurants, mining companies and other places of work where a huge labour force is concentrated......

Read - The Hindu

Pass The Loan Or Face The Bullet

This is an article in the latest India Today, which must open the eyes of RBI/NABARD/Govt and indeed all stake-holders and address the problem before our banker collegues get into deeper problems. 

- K C Shashidhar, CGM, NABARD, Mumbai

……….."Banks are given a target figure for granting Kisan Credit Cards (KCC) as soft loan to farmers. This is a priority area, and though targets are seldom achieved, managers feel the threat of transfer or other tough action if they don't achieve at least 50 per cent of the goal. Unscrupulous intermediaries use these circumstances to their benefit, arrange loan seekers and bag a 'cut' in the process. The trouble begins when the go-betweens get greedy, and produce people with fake identity and land-ownership papers, and then put pressure on us for loans. More often than not, we bow to their wishes. After all, they are goons, and the state government doesn't give us any security," explains a manager of a branch in rural Patna………..

Read - India Today

Economy still fundamentally strong, positive surprises in offing: Deutsche Bank

..... we are cautiously optimistic that between the finance ministry and the RBI, at the very least infrastructure spending, will be revived and some monetary easing would take place.

Read - ET

RBI Governor Subbarao to appear before JPC on 2G

RBI Governor D Subbarao, who was the Finance Secretary when 2G licences were allocated, will appear before the Joint Parliamentary Committee examining the issue as a witness on September 18. He was the Finance Secretary between April, 2007 and September, 2008. The controversial 2G radiowave licences were allocated in January, 2008......... 

Read - BS

Will Chidambaram stick to Pranab's choice?

Finance Minister P Chidambaram will soon have to decide whether to stick by his predecessor’s choice of former Reserve Bank governor Y V Reddy for chairmanship of the 14th Finance Commission, to be set up next month. Reddy’s name was suggested by the finance ministry during Pranab Mukherjee’s tenure. Earlier, former economic affairs secretary R Gopalan’s name for one of the members of the Commission was doing the rounds but now officials say he might not be the part of the body, to recommend on sharing of funds between the Centre and the states for 2015-20.......

Read - BS

Urgent need to act on fiscal front to stabilize economy: former RBI Governor

At a time when the markets and investors continue to await action from the government on various fronts including on fuel prices, former RBI Governor, Dr. Bimal Jalan feels there is an urgent need for the government to act, particularly on the fiscal front. He feels that politics and political compulsions are continuing to come in the way of economic progress and calls for political reforms to ensure smoother functioning of the economy.......

Watch the video........

Needed: Financial literacy for regulators

There are thousands of similar customers who have been looted by these insurance companies. I am sure IRDA gets hundreds of such complaints every day. Why is the regulator not taking any action against such fraud in the country? I am a well-educated MBA from IIM-Ahmedabad, having been taught by Mr Rangarajan, Dr KP Krishnan and such seniors…”

Read - Moneylife

Whitewashing the banking sector

What’s the real level of non-performing assets (NPAs) in the Indian banking system? NPAs, or loans defaulted by borrowers for a period of 90 days, could be more than double of what has been already announced by the banks as they have found a way out to repackage the problematic loan accounts and brush them under the carpet..........

Read - Indian Express

Economics vs politics

..... If rating agencies are not convinced there is a credible plan to fix the fisc, a rating downgrade taking India to junk level looks likely. Though the RBI Governor has said India will be able to manage, this seems more like wishful thinking.....

Read - FE

RBI permits investment in Pakistan by Indian corporates

....."It has now been decided that the overseas direct investment by Indian parties in Pakistan shall henceforth be considered under the approval route," RBI said in a notification. The moves comes days after India allowed investment from Pakistan. ....

Read - ET

An MRI on health of the economy - S S Tarapore

....Till the late 1980s, the approach was that the RBI should reveal the bare minimum required by law and secrecy was the hallmark. Progressively, a more enlightened approach emerged and the RBI now provides a more meaningful presentation. The RBI Accounts and Balance Sheet provide a Magnetic Resonance Image (MRI) of the health of the economy and is very different from a corporate balance-sheet. When the RBI balance-sheet swells, it invariably portends a difficult situation for the economy. Quite often, an increase in the RBI profits is a cause of concern and the payment of dividend (by way of the surplus transferred to government) is no different from created money.......  

Read - HBL

How RBI steers four horses that pull in different directions

.....In India, the Reserve Bank of India (RBI) has multiple and conflicting objectives to manage. It has to manage inflation, growth, rupee and government of India’s borrowing programme. If RBI tries to lower inflation by raising rates, growth falters. If RBI tries to revive growth by cutting rates, rupee can depreciate. If RBI supports the borrowing programme, inflation can move higher. If RBI raises rates to defend the rupee, growth can suffer. Every action of RBI in managing one objective has some bearing on another objective.......

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RBI should lay down entry norms for new banks, says Rangarajan

....“If the Indian banking system is to remain competitive over time, there should be periodic entry of new banks, a closed system can only become oligopolistic,”.......

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Risks to financial stability have worsened, says RBI

.....“(In India) downside risks to financial stability have worsened due to global and domestic factors… there is increasing evidence of deteriorating asset quality (in the banking system),”......

Read - Mint

CRR: The proxy war between FM and RBI

If the CRR is, god forbid, indeed taken away,

it will be a cardinal sin, the saddest day for the economy

.....Under current rules RBI doesn’t have the power to pay interest on CRR. This power was taken away from the RBI through an amendment to the RBI Act in 2006, an amendment which RBI itself suggested. Old timers say RBI gave up this power, only because as long as it has the option to pay interest, bankers will always lobby for it . In fact, that the CRR is really a battle ground between RBI and finance ministry is best evident from the war between the two institutions when these amendments were passed in 2006.  That Amendment bill brought a bunch of changes. Hitherto the CRR could not be cut below 3 percent, but the law said that RBI may pay interest on CRR above 3 percent, if it wishes. The 2006 amendment removed the 3 percent lower limit. RBI argued CRR could go to zero if the situation warranted, but at all times it won’t pay interest – a clever move that the finance ministry apparently realised only after the amendment was passed......  

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CRR, a tool for rare use: Rangarajan

The country needs to move towards a situation where Cash Reserve Ratio (CRR) level comes down and that it is used as an instrument of “credit control” only in extraordinary conditions, said C. Rangarajan, Chairman, Economic Advisory Council to the Prime Minister, on Thursday. As “Open market operations (OMOs) became increasingly major instrument….The role of CRR, as credit control, will come down,”......

Read - The Hindu

CRR is not beyond debate.....but the last word is RBI’s

Apropos the issue of whether we need the cash reserve ratio (CRR) or not, Deputy Governor K C Chakarbarty needs to rethink his position that regulatory issues need not be subjected to debates. If the Constitution of India can be amended 116 times over 62 years, why can’t we consider changing the regulatory framework?................

......From the Reserve Bank of India’s (RBI’s) perspective, CRR is vital for controlling liquidity in the system. And indeed RBI should have the final say on the issue since CRR is part of the monetary policy, which is the sole preserve of RBI.

Read - BS

Use CRR only as last resort: Rangarajan

Chairman to the Prime Minister's economic council and former RBI Governor, C Rangarajan, said CRR should be used as a tool to control credit only in ‘extraordinary circumstances’ as open market operations become an increasingly major instrument to control liquidity. The argument would be seen as a support for State Bank of India's chairman Pratip Chaudhuri’s call for CRR being abolished for which he was snubbed by KC Chakarbarty, the Deputy Governor of RBI........ 

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Rangarajan says CRR should be reduced

The chairman of Prime Minister’s economic advisory council, C Rangarajan, has added to the debate on banks’ Cash Reserve Ratio (CRR), saying it should be brought down and used only in extraordinary conditions. He said the need for using it reduces with the option of Open Market Operations (OMOs) in place.....

Read - BS

SBI expects 1% reduction in CRR on 17th September

..............Explaining the rationale further, Chaudhuri said the total incremental income to SBI will be only around Rs100 crore in case of a repo cut. "That is why when RBI raised the rates three times, none of the banks moved the rates. So, I will say though repo rates and base rate move in the same direction, the correlation is very weak." The statement comes in the middle of a row he started last week by calling for abolition of the CRR, saying this would release the much needed funds to the system.

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‘Stake dilution in public sector banks poses political problem’

....“The other alternative of reducing the share of the government in public sector banks poses difficult political problems,” Dr. Rangarajan said addressing a financial summit here. His comments come within two days of Reserve Bank Governor D. Subbaroa stating that if the government decides to maintain its stake at 57 percent, it will have to pump-in Rs.90,000 crore while if it decides to bring it down to 51 per cent, it would need to infuse Rs.70,000 crore......

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RBI advises against gold investment

On a day gold prices touched a new high, the Reserve Bank of India (RBI) urged the public against choosing gold as an asset for savings or investment. "Because interest rates are very low, people are investing in gold. But the poor should never invest in gold for whenever they have purchased gold, it either lands up in the temple or in the hands of the moneylender or, at the most, it may be given away during a daughter's marriage," said K C Chakrabarty, Deputy Governor, RBI....... 

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GMLA not applicable to NBFCs under RBI Act: HC

.....According to section 5(2) of the GMLA all NBFCs registered under RBI Act and operating in Gujarat come under purview of the GMLA They will have to report to the Registrar General of Money Lenders. The Court held that this was in direct interference with the institutions which are registered under the RBI Act. The state law was encroaching upon the RBI Act which is a central act. The section 5(2) of the GMLA is against the Constitution of India as it seek to have control over all NBFCs already registered under the RBI Act. "The GMLA will not be applicable to all NBFCs registered under RBI Act," the court held.......

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LIC's 11% SBI stake makes RBI see red

.....The Reserve Bank of India (RBI) has conveyed its discomfort to the bank’s management, according to a top SBI official. “These are two big institutions. RBI is not comfortable with two large institutions having a cosy relationship,” the official said. A top RBI official also confirmed the development. “Any institution that wants to have more than five per cent stake in a bank needs to have our prior approval, even if the stake is acquired from the secondary market,” the RBI official said. “We don’t want the banking sector to have too much capital from volatile sources,” he added.......

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'Banks should give replacement before leaving a consortium'

...The panel was also formed to increase the information sharing process within banks in the consortium because the finance ministry is of the view that despite the Reserve Bank of India (RBI)’s repeated requests, there is an asymmetry in information among banks and the companies have been taking advantage of it............

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Manage your credit well to curb NPAs: RBI to banks

.............“Overall improvement in the risk management systems, upgrading technological platforms and building up of specialised skills in the banking system are the challenges which will distinguish the more successful ones from the others. It is important that competitive pressures are not allowed to override basic prudence,”............ 

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Sinha backs call for higher NPA provisioning

Reserve Bank of India (RBI) Deputy Governor Anand Sinha has backed the Mahapatra committee’s recommendation of higher provisioning for restructured assets. Banks, however, had opposed the proposal, saying this would lead to a sharp rise in bad assets.........   

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RBI: Do not differentiate between depositors

The Reserve Bank of India (RBI) has told banks not to differentiate between high-value depositors and small depositors. “There can be reasonable difference (in the interest rates), but it shouldn’t be large,” said Deputy Governor K C Chakrabarty...........

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RBI Deputy Guv for Less Disparity in Deposit Rates

...."We at RBI would want banks to offer more or less similar rates to all depositors, although a reasonable difference is fine," the senior most Deputy Governor told a gathering at the MR Pai memorial award function (the award was given to women's self-help group Sewa). The late MR Pai was a crusader for the rights of bank depositors.....

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ECB action could help trim CAD: Chakrabarty

...."Yes, the bond-buying programme announced by ECB today could increase the fund flows into our economy. If it happens, which is likely, then it can help bring down our high current account deficit (CAD). From that point, the move is good for us but it also can increase commodity prices," ......

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Revised guidelines on priority sector lending – rationale and logic - K C Chakrabarty

.......The priority that senior management of banks accord to priority sector would determine the success of our efforts in this area. Without this commitment, it would not be possible to accomplish this task. Let me assure you that the top management at the Reserve Bank is fully committed to this goal, as is evident from the amount of time we spend on this subject at our meetings and outreach visits and the number of enabling policy initiatives that we have taken in this regard. Financial inclusion and priority sector credit are closely interconnected subjects as financial inclusion is the process and priority sector loans are the business effect/ end product of the same in the books of the banks. If we are doing financial inclusion, then these targets are achievable, if not, then these are not. The new guidelines, then, is the new mantra...........

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National Housing Bank to introduce guidelines for non-banking housing finance cos.: Chairman

......``Besides, the lending sector cannot lend beyond a certain point due to capital constraints and with securitisation they would be enabled to continue to lend and can come over all constraints if they are able to securitise,`` said Verma while releasing an ASSOCHAM study titled `Securitisation: The Emerging Funding Vehicle` along with A.K. Choudhary, General Manager, Department of Banking Operations and Development (DBOD), Reserve Bank of India; S.C. Aggarwal, chairman, ASSOCHAM Capital Market Committee........

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PERFORMANCE OF THE INDIAN RUPEE

..........In terms of managing the currency, the Reserve Bank of India (RBI) has been unique in that it has been following a flexible exchange rate policy in the last couple of years (except for the heavy intervention in the three months to January 2012). The current stance is significantly different from the rigid stance of the pre-1991 period. This flexible stance led to a significant ................ 

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India's banks face tough period

I

ndia's struggling banking sector will face a period of lower profitability as it seeks to raise at least Rs 5,00,000 crore (USD 90bn) in extra capital to meet the new Basel III international banking standards, the head of the nation's central bank has warned........... 

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