The government is set to embark on a cleanup of public sector bank boards in light of the recent arrest of a bank chairman, said Nirmala Sitharaman, minister of state for finance as well as commerce & industry. ......
Read - ET
Read - ET
The very purpose of VITALINFO is to provide a platform for wider dissemination of updated information related to and happening of events in and around RBI.
Friday, August 8, 2014
Leave the banks alone
.........The argument against any kind of relief either in the form of restructuring or write-offs is that it impinges on the operations and credibility of the financial system. Bankers would be in a quandary on whether or not to lend and could also dilute their standards knowing well that there are options available to avoid classifying such defaults as NPAs. Therefore, RBI needs to ensure that this credibility is not diluted in any way. The problem with loan-waivers is that..............
Inability to raise capital may hit banks’ capitalization: Amit Pandey
......The performance of India’s banks is closely linked to the underlying performance of the economy. Therefore, to put India’s economy—and its banking sector—back on track, we believe the government should introduce reforms that boost economic growth and control the country’s inflation and fiscal deficit. The measures required to improve growth prospects will entail providing policy, administrative, tax and regulatory certainty to improve the business climate and.......
Rescheduling crop loans: look beyond statistics, AP tells RBI
......After the Credit Policy, the RBI Governor had stated only in conditions where the agriculture production has dropped below 50 per cent due to adverse seasonal conditions that crop loans could be rescheduled. This has put both the Telangana and AP Governments in a piquant situation. The State Chief Secretary IYR Krishna Rao, in a communication to the Executive Director of RBI, has requested the rescheduling the crop loans and sent in a detailed analytical note on the agricultural situation during kharif 2013-14.........
Do ARCs help resolve NPAs or just bail out banks?
........Banks’ other major consideration for sale to ARCs is extremely tardy legal administration and enforcement. The government has recognised the need to remedy this, and the legal enforcement will have to be revamped urgently lest the country’s banking faces crisis. The current management fee driven model of ARCs also needs to evolve into an equitable risk-reward sharing model. Such models can be put in place only if the banks shed their tendency to avoid provisioning. A new organisation, called the NAMC has recently been proposed. It is supposed to work on taking over big ticket NPAs from banks and revive them. The second part of this two-part look at NPAs and asset re-construction will take a closer look at how these ideas will pan out in the future.
ARC of reason
.......Hopefully, that will lead ARCs to focus more on what is called resolution and recovery—essentially figuring out how the asset can generate cash flows. Perhaps the best step RBI has taken is to allow the ARCs to become members of the Joint Lenders Forum (JLF). What that will do is to help speed up debt aggregation—essentially allow the ARC to ‘buy out’ the loans quickly and in ample quantities so that it can act fast. Indeed, where it took ARCs anywhere between .........
Reserve Bank eases rules to kickstart infra funding
.......Until now, RBI had made it mandatory that refinance by way of take-out financing could take place only with an agreement with the consortium of lenders. The RBI now has allowed banks to refinance loans by way of full and partial take-out financing if the aggregate exposure of all institutional lenders to such project is a minimum of Rs 1,000 crore. The repayment period will be fixed by taking into account the.......
How important are forex reserves?
.......Earlier this week, in an interaction with business publications, RBI governor Raghuram Rajan said that reserves cannot buy a country immunity from volatility in global currency markets and at best will prevent second round impacts of that volatility. “Reserves are useful to have but they come at a cost… and we are financing another country. Should we be financing another country when we have significant financing needs?” Rajan argued. He went on to add that.........
Plea to Promote Interest-free Banking
.........The fundamental objective of the interest-free banking system is to eliminate exploitation of borrowers. It considers lending as an investment and distributes investment risk between the users and suppliers of funds. It has been proven that this type of banking will be a vital tool to move into the league of major financial centres of the world and achieve development and growth of the Indian banking sector, foreign participation in large-scale infrastructure projects, and active participation of around 20 per cent Indian citizens living in the country and abroad in banking and financial activities............
Thursday, August 7, 2014
The RBI Governor, Raghuram Rajan Interview Only On ET NOW
ET NOW brings you the first and exclusive interview of RBI Governor Raghuram Rajan after yesterday's monetary policy announcement right here! ET NOW’s Mythili Bhusnurmath caught up with the man himself to talk about RBI’s way forward considering this is notably Rajan’s first ever since Narendra Modi took over as Prime Minister Of India. You cannot miss this one!
Right on rates
..........In other words, the first priority of the central bank will continue to be inflation. The Urjit Patel committee had set the guideline for the monetary policy easing: Bring down inflation to four per cent, plus or minus two per cent, and then consider lower rates. Rajan summed up the RBI position succinctly: “ … we are not against growth but we do think that the growth will be most benefited if we disinflate the economy and we don’t have to fight this fight again…” Remarkably, the Finance Ministry was quick to endorse the latest policy stance of the central bank. In a statement soon after Rajan confirmed the status quo on rates, the ministry said that it believed that the RBI will not “ hold interest rates high any longer than is necessary and if disinflation proceeds as warranted, there will eventually be room to cut rates…” It had been a long time since we last saw the central bank governor and the finance ministry on the same page. Such harmonious relationship augurs well for the management of the economy, alright..........
Millions Thank RBI Governor
Raghuram Rajan, by not lowering interest rates (`RBI is Cautious, Yet Accommodative', ET, Jul 6), has protected the interest of millions of people who park their hard-earned money in bank fixed deposits, their mainstay in running their households. Lowering of policy rates would inevitably entail lowering of FD rates along with lending rates. In fact, former RBI governor D Subbarao had admitted that he was also a custodian of interest of millions of faceless depositors and savers who could hardly form a lobby to clamour for raising the rates. - BISWATOSH BAGCHI Kolkata
ET
ET
Rajan says government can weigh in on inflation
............Rajan, in an interview with TV channel, also denied inflation was the RBI`s sole focus, noting the 6 percent inflation target was achievable without a "substantial sacrifice" on economic growth. "Let`s get it down to 6 (percent). That`s a reasonable level of inflation," Rajan said. "Then you know, we can have a public debate, the government is going to weigh in on that, what the ultimate inflation goal might be."..................
An Interest Rate Cut Need Not Wait for 6% Inflation
...........Moderate inflation is fine. High inflation close to 10% is detrimental in many ways. First, of course, with high rate of inflation, to keep people saving in fixed income, you need high rates of interest. Real interest rates may not be very high because they are nominal minus inflation, but because the business house that is investing, it has to invest at those high nominal rates. The possibility that inflation may come down creates a lot of fear about locking in at those levels, so it creates a dampening effect on investment. It has an effect on external account, if inflation is high, there is a natural tendency for currency to depreciate relative to the rest of the world and......................
Don’t want to keep fighting inflation every two years
.........Inflation is a disease that we have to get rid of if we want sustainable growth. Moderate inflation is fine but the high levels of inflation that we have, of close to 10% and sometimes above, is detrimental to growth in many ways. The problem in the last few fights around inflation is that every time we look like we are succeeding, the clamour for rate cuts rises. It is true that we don’t want higher rates for longer than we need to have but we don’t want to keep fighting inflation every two years, which is what we have been doing over the last few years. Our point is that let us reliably bring down inflation. Are we being too tight relative to the growth situation? I don’t think so................
A new normal for inflation? - A.Seshan
.................Earlier, under the old management, there was talk about the new normal of 6.5 per cent. It was criticised and there was no subsequent official reference to the idea. One hopes the Central bank will stick to the level of 5 per cent even though it too is high for a poor country with millions struggling to make ends meet. There is an anomaly in this. The policy is to keep the real effective exchange rate stable. Western countries and Japan have adopted a range of 2-3 per cent as the targeted inflation rate. If our rate is more than that by two to three points, would it not come in the way of maintaining the real exchange rate for the rupee?.............
Reforms and Development: Challenges Before the Policy Makers
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Read - The Global Analyst
Banking, Reforms & Corruption: Development Issues in 21st Century India
By M G Warrier
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Sainik School, Imphal wins RBI quiz
........Speaking on the occasion, Barik explained the importance of quiz for the students and stated that the purpose of conducting quiz programme by RBI is to promote financial literacy, create an awareness and interest among students about the history and role of the Reserve Bank, banking and finance, other banking institutions, economics, current affairs, personalities and events that have contributed to the growth and progress of India over the years. In addition, the objective is to build a 'connect' between the Reserve Bank and the young student community across the country and to disseminate financial literacy extensively and to recognize and encourage bright young students on a national platform. Earlier, Kishore Pariyar, DGM, RBI, Guwahati welcomed all the dignitaries and participants to the programme,......
Obituary
Shri Vijay Puthran, Special Assistant attached to Belapur Office passed away on August 3, 2014. He was appointed in the Bank in 1981.
Word puzzle: Is it Rajan's flip-flop, or market's?
.............. "If disinflation, adjusting for base effects, is faster than currently anticipated, it will provide headroom for an easing of the policy stance," Rajan had said in June, after which consumer prices started falling to less than 8 per cent, the target suggested by the Urjit Patel panel for 2014. Come August, the choice of words is different. Here is Rajan: "The balance of risks around the medium-term inflation path, and especially the target of 6 per cent by January 2016, are still to the upside, warranting a heightened state of policy preparedness to contain these risks if they materialise.".............
Forex market interventions not part of liquidity mgmt: RBI
............ “I don’t think we manage liquidity through the foreign exchange market. Sometimes, there might be situations in which we can temporarily take advantage of any intervention we have undertaken to alter liquidity positions — take delivery or postpone delivery, given the liquidity situation. But it is not a long-term tool or a tool we rely on.”.............
`Acche din` for borrowers will take some time: Raghuram Rajan
...............In a candid interview with Mihir Bhatt of Zee Media Corp, Raghuram Rajan shares his views on RBI`s monetary stance, India`s growth prospects, inflation and much more. Excerpts... ......
RBI to cut down 'pre-emptions' to spur efficiency: Raghuram Rajan
...."The broader, longer term programme of five years, is that we should reduce the amount of pre-emptions we have in the system including SLR and make a more effective priority sector lending (PSL) process," Rajan said during the customary post-policy call with analysts. Rajan drew attention towards the Nachiket Mor committee on PSL and said that the RBI is trying to make the entire process more effective. .......
RBI governor Raghuram Rajan warns of global market ‘crash’
..........The comments, carried in an interview with Central Banking Journal, reiterate Rajan’s previous warnings that emerging markets were especially vulnerable to big shifts in capital flows brought on by the unprecedented monetary accommodation in rich nations....................
Raghuram Rajan on the dangers of asset prices, policy spillovers and finance in India
Raghuram
Rajan, governor of the Reserve Bank of India, speaks about the challenges
facing emerging market central banks, spillovers and getting to know India’s
new prime minister Narendra Modi
You took on the role as governor of the Reserve Bank of India
(RBI) at a difficult time in September last year. Did you have any conditions
before you accepted the job, and how would you assess the success of your
immediate objectives?
You do not enter this job with conditions. But I had a good
understanding with the finance minister P Chidambaram and the prime minister
Manmohan Singh. It was based on a sense that we would have to work out what was
needed as time went on. There was a fair amount of turmoil in the financial
markets at the time. The rupee and the stock market were falling. There was a
lot of concern given India’s large current account deficit that the economy was
fragile. That sense of fragility was probably overstated, but there was a clear
need to restore confidence quickly to the financial markets as well as some
stability to the exchange rate. That was the environment when I came in. The
determination I made was that rather than trying to stabilise the exchange rate
directly by intervening in the exchange markets, a better way was to reassure
investors about the longer-term value of the rupee, which meant tackling
inflation. And as we tackled inflation, other things would fall into place.
Soon after taking office, I established the terms of what we would
do to create a clearer monetary framework, to focus on CPI inflation and
bringing it down, as well as introducing other structural reforms that would
help bring some confidence to the financial markets. In retrospect, it did seem
to work. One of the elements was to raise a fair amount of dollars quickly to
show we still had the capacity to raise money should the need arise. We didn’t
need that money, there was no urgent need for it and we took it directly into
reserves. But it was good to show the world that we had the capacity to tap
markets.
How well do you think the RBI is now addressing what some have
described as a continuing struggle with ‘growth-inflation’ dynamics?
This is more the description from outside the RBI than inside. I
am hopeful we have made the case – to people in government also – that without
bringing inflation down, there is no sustainable path to growth that we can
envisage. Both the RBI and, as far as I understand it, the government are on
the same page on this. We have to bring inflation down and it involves a number
of instruments. Monetary policy is one of them, but of course fiscal policy as
well as actions on the supply side to increase the supply and have better
management of food – these are also all central to bringing inflation down in
India. With all instruments working, hopefully we will achieve the goals we
have laid out for ourselves, which is 8% by the year-end and 6% by the end of
next year.
Your predecessor accepted that ‘baby steps’ tightening to address
inflation concerns a couple of years ago were too slow in hindsight. Meanwhile,
the IMF has called on the RBI to quicken your tightening efforts. What is
holding you back – is it the lack of influence rates can have on food prices?
Outside observers do not understand this economy as well as they
should. So their advice is probably not as useful as one might think. With
demand fairly weak in the economy, the key question is: ‘Are you going to get a
lot more mileage from weakening it further in the fight against inflation?’
Second, with stresses in the financial system at a relatively high level, you
have to be careful of somebody saying, ‘let’s do a [Paul] Volcker’ and raise
interest rates sky high as it will really kill inflation. The problem is that
it may also potentially kill the economy. And in India, unlike in the United
States, we do not have $500 billion to rescue the system. So you have to be a
little careful taking advice from people who haven’t fully thought through the
details of what needs to be done. What we believe is that, with the current
level of rates and in the absence of shock that we have not anticipated yet, we
are on a disinflationary path that is reasonable given the stresses in the
economy, and this will get us to 8% in a year and 6% by the end of next year.
If we haven’t calculated appropriately, we will make adjustments based on
outcomes as we see them.
Are India’s problems really the result of the Fed’s talk of
tapering and actual tapering?
What happened in May 2013 was a wake-up call. It came after
Indians had made a substantial expansion in our purchases of gold, which
widened our current account deficit. Those purchases of gold came in April and
May 2013 and were extraordinarily high. We were caught by the Fed announcement
at a time when we were, in some ways, least prepared for a tightening of
financial markets. We made necessary adjustments, so much so that in January
this year when we saw a fresh set of what people call ‘taper tantrums’, India
was relatively immune compared with other emerging markets. Given the political
developments in the country [with the election of Narendra Modi as prime
minister in May], there is much more confidence in India relative to before.
Obviously, we have to keep on doing our homework.
Is there an issue with the way industrial world central banks
unilaterally change their monetary policies?
The problem with monetary policy changes by developed world
central banks is the uncertainty created. The changes are at the time of
choosing of the central banks of the industrial countries. This may come at a
time that does not suit us. Of course, there is the age old mantra ‘let the
exchange rate do the talking and then you are insulated’. That advice is
garbage. A number of emerging markets are not insulated – you are affected,
regardless of what kinds of policies you follow. So, it causes us to have to
adjust to a different timetable than we may want. I am not saying we were in a
good place in May 2013 – we were not in a good place and therefore we needed to
adjust – but even if we were in a better place, we would still need to adjust.
The question is: ‘is this a reasonable thing’? The reaction you get is: ‘should
industrial countries change their policies according to the needs of emerging
markets – are you so presumptuous that this should happen?’. And the answer is:
‘Maybe not.
But should emerging markets forever tailor their needs to the
demands of industrial countries?’ Certainly some industrial countries have been
asking emerging markets to tailor their policies to the needs of the industrial
countries. A case in point being exchange rate intervention: People say, ‘do
not do exchange rate intervention because it harms demand for us’, or ‘do not
run large surpluses because it hurts demand, start moderating those surpluses’.
Is that not a case of asking other countries to tailor their policies to the
demands of the global economy? A better way to check whether a policy is
reasonable is to ask whether the policy hurts the rest of the world more than
it helps the country undertaking it?’ If it does, the policy should be avoided.
My point is that in a world that is where we are all integrated everyone has
responsibilities, not just the emerging markets.
What concrete actions can actually be taken?
The fact we have started raising these issues has created greater
awareness in central banks around the world as well as among policy-makers that
there are spillover effects and countries need to take them into account. It
has also raised awareness in mulitlateral agencies. The IMF has recently
suggested it is going to examine these policies, not with a view of blessing
them unilaterally but by trying to see if on net they are beneficial. That is a
big change from where we were at the beginning of this year and that is wonderful.
The sensitivity this kind of discussion raises in central banks will make them
think about the value of policies and whether they are helpful elsewhere. I
have no doubt countries will still do what is largely in their interest. But
over time we need a little more effort looking at the global interest. My sense
is that once the debate is engaged, we will figure out a way to move in that
direction.
So debate and empirical evidence could result in even central
banks such as the Fed considering ‘spillbacks’ in the future?
It is not just an emerging market problem. What is the euro area’s
problem today? It seems to be facing at least a disinflationary environment,
some say close to deflation, and needs to accommodate more. But from an
historical perspective, euro policy is already very, very accommodative.
Interest rates are close to zero, which is why there is talk about going to
negative rates. So why does accommodative policy seem un-accommodative? It is
because everyone else’s policy is even more accommodative. You see the
spillover effects even among the industrial countries. If you look at euro area
disinflation, a fair amount of it is because of the exchange rate. The exchange
rate is too strong given the euro area’s economic standing. Why is it so strong?
Is it because monetary policies elsewhere are even more accommodative? So, in a
world where demand is weak and not strongly influenced by monetary policy, the
effect of monetary policy may be more ‘demand shifting’ that is operating
through the exchange rate, rather than ‘demand creation’ that is operating
through credit growth and credit flows domestically. So we are back to the
1930s, in a world of competitive easing. Back then, it was competitive
devaluation, but competitive easing could lead to competitive devaluation. If
there were no consequences to competitive easing, fine. But there are
consequences.
So the eurozone is experiencing a similar problem as emerging
markets due to fund inflows as investors chase yield?
Similar problem as the emerging markets have – a whole lot of
money pouring in. It may bring down yields and push up asset prices, but it
also pushes up the exchange rate. That creates a self-fulfilling process as
more money comes because returns have gone up and the exchange rate has gone
up.
Are monitoring bodies, such as the IMF on top of the situation?
My sense of alarm about the situation is due to the financial
sector imbalances that build up, and that the financial cycle is ahead of the
economic cycle. The problems arising are not so much from credit growth, which
is relatively tepid in the industrial markets and has been much stronger in
emerging markets, but from asset prices due to financial risk-taking and so on.
Unfortunately, a number of macroeconomists have not fully learned the lessons
of the great financial crisis. They still do not pay enough attention – en
passant – to the financial sector. Financial sector crises are not as
predictable. The risks build up until, wham, it hits you. So it is not like
economic growth, where unemployment offers a more continuous indicator. At the
moment you see favourable unemployment and low levels of inflation, and think
you have a lot of policy room for manoeuvre. The concern is that central banks
may be exhausting room on the financial side and creating a situation where
there will be a discontinuous movement in the financial sector. That is my
worry. Some of our macroeconomists are not recognising the overall build-up of
risks. We are taking a greater chance of having another crash at a time when
the world is less capable of bearing the cost.
Are central banks encouraging the situation?
I see our vulnerability is increasing to discontinuous changes in
asset prices, which could happen in a variety of ways. The kind of language we
hear is akin to gaming. Investors say, ‘we will stay with the trade because
central banks are willing to provide easy money and I can see that easy money
continuing into the foreseeable future’. It’s the same old story. They add ‘I
will get out before everyone else gets out’. They put the trades on even though
they know what will happen as everyone attempts to exit positions at the same
time. There will be major market volatility if that occurs. True, it may not
happen if we can find a way to unwind everything steadily. But it is a big hope
and a prayer.
What do you make of efforts to reform regulation of the financial
system, through Basel III and the G-20 process?
We have addressed some of the issues. But the underlying problem
is that the measured risks do seem to come down as volatility falls, and
central bank accommodation is a very good instrument to reduce volatility. We
have a lot of accommodation, so volatility and measured risks are also likely
to be low in the regulated sector. Then a fair amount of the risks may not
reside in the entities we have decided to regulate more forcefully. We haven’t
done a lot on the shadow-banking system. But ordinary pension funds and mutual
funds could be taking on some of these risks. So I worry about that.
What can you tell us about the conversations you have had with
prime minister Narendra Modi and finance minister Arun Jaitley following the
recent election. Do you expect government and RBI actions to be more closely
aligned?
To some extent, in India, we have always had a fairly close
dialogue between the central bank and the finance ministry as well as with the
prime minister. That dialogue continues. I do not expect a significant change.
Occasionally there have been differences that have been expressed in public in
the past. But those differences should be seen as a reflection of the
independence of the central bank – while we talk a lot and confabulate
occasionally, we don’t see the issues in exactly the same way. But I do not see
these differences as big. And I do not think we are any different in this
respect to other major countries.
The RBI has a broad mandate, including keeping inflation low,
supporting economic growth and minimising foreign exchange volatility, as well
as being the regulator for banks and other deposit-taking institutions, having
overall responsibility for financial stability, and for the government’s debt.
Is it too broad?
Yes and no. We are a developing country and some of these areas
require an entity that straddles different areas. To illustrate the point, we
need to bring more liquidity to the government bond market where liquidity is
focused only on just a few bonds. Since we manage government debt issuance,
hold government debt as part of our asset portfolio and frequently take action
in the market to meet policy objectives, we have a strong sense about how to
increase liquidity in the government debt market. This also undoubtedly creates
conflicts of interest, so we have to manage those. Some people have said the
fact we manage the government’s debt makes us more lenient towards monetary
policy or more eager to purchase government debt as part of our portfolio.
Those conflicts of interest exist elsewhere and we have to make sure our
policies make it clear we are not succumbing to them. For example, we have to
make it clear that we will not purchase government debt to bail it out; that
the government has to sell its debt in the primary market and others have to
purchase it. Whatever actions we take in purchasing government debt are purely
for monetary or liquidity purposes, not for fiscal funding. Over the last year
we have done very little purchasing of government debt for example, because
there was no need to do it for liquidity purposes.
As chair of the Committee on Financial Sector Reforms it appeared
you favoured reducing the scope of the RBI. Has your view changed?
No, I do not think I proposed cutting back on what the RBI did.
The committee’s report was that the RBI should continue its supervision
functions etc. It was more that the RBI should allow a greater flourishing of
the financial markets and, to some extent, be less protective of the banks
under its regulation. In fact, that is consistent with the actions we have
undertaken in the past few months. We have tried to deepen the financial
markets while liberating the banks. We are creating more competition within the
banking system and between the banking system and the financial markets.
The RBI has issued new banking licences but none of the major
corporate groups have secured licences so far. Are you worried about the impact
of giving bank licences to very powerful business groups that may have
significant political connections?
No, as we said explicitly when giving the licences, we were being
conservative. We are reopening the licencing process for ‘differentiated banks’
– payment banks as well as small banks – and entities can throw their hat in
the ring again. The process is ongoing and we will take a view when a new
application comes in.
The RBI is currently in the third phase of a restructuring review.
How is that going?
We are trying to align the organisation to the new needs that are
being thrown up in the economy. So we are trying to reorganise the structure by
making as few changes as necessary to achieve what we need to do. There is also
the issue of internal human resources development – how do we measure
performance as we make these changes, how do we create promotion opportunities,
how do we build skills we need and how do we recruit talent from outside? As I
understand it, these are the same issues every central banks faces. Some, such
as Bank Negara Malaysia, have done an extraordinary job changing in the past so
many years. We have made changes over time, but this is a good opportunity to
take a look to see what we need to do internally to meet the external
responsibilities we have.
You have described foreign exchange limits, such as the
liberalised remittance scheme, as macro-prudential tools. What exactly do you
mean?
Let me give you an example. On June 3, we allowed individuals to
take out $125,000 a year out of the country, up from $75,000 per year, so a
family of four can take out $500,000 per year in terms of capital outflows.
Earlier last year, we had shrunk this amount when we were faced with
substantial outflows. Even though it was a relatively small amount at that
point, it was a macro-prudential tool used to shrink what people could take
out. Then at times when you have greater access to foreign liquidity it makes
sense to liberalise it a little more. I see this as a tool, not as something
that needs to be changed every month; I would change it infrequently. When
there is a lot of money coming in, you should let some out – I did a paper on
this when I was at the Fund. But when there is a lot of money pouring out,
perhaps you can be a little more restrictive without people immediately saying,
‘this is now a reversal of capital controls’. You are not changing foreign
investors’ ability to take money out – the people that have brought money to
the country will still be able to exit freely. But to your own citizens, you
are saying, ‘Yes, we understand you have some diversification needs, and we
will keep some minimum to allow you to do it, but we will also move that over
time, based on the macro-economic situation so you can help to some extent in
running the macroeconomy’. I see it as a macro-prudential tool, rather than
something moral or anything. Some people saw it as against free markets. No, it
is macro-prudential. It is opening the spigot wider and then closing it a
little bit, depending on the extent of flows and thereby helping regulate the
economy.
So that does not get in the way of rupee internationalisation?
No, to the extent that over time we expand the minimum and do not
go below that – so, for now, the minimum seems to be $75,000 from where we have
expanded. Over time, that minimum will keep going up. At some point we will be
able to open up fully, when the rupee and our financial sector are strong
enough. I do not see that as something that happens next year but within a
decade, why not?
You have one of the largest foreign exchange reserves in the
world, holding more than $315 billion in assets. There must be quite a high
cost of carry. What is being done to minimalise that, or is it not particularly
an issue?
This is the cost of not being a reserve currency. It is the cost
of being an emerging market. You have to carry large reserves and have to fund
the debt of a variety of other countries, simply because it is extremely costly
to be short of those reserves. It is a mark of confidence. So, yes, there is a
cost of carry and, yes, we don’t want too much of it. One of the reasons to
open the spigot wider is to let outflows happen when the money is pouring in. In
foreign countries where the spigot is fully open, private individuals build up
assets in other countries when money is pouring in. In India, where the spigot
is half closed, private individuals cannot build up, so the central bank has to
build up. This is precisely related to our previous issue.
But when the pressure is on us to build up and buy relatively
unproductive assets, maybe we should allow more of our citizens to buy foreign
assets instead. That is the intention of macro-prudential, because the movements
in the exchange rate caused by changes in the risk perception of the country
may be too much for the country given its economic situation. So we build what
we need to build but we have no intention to build a huge hoard in any way.
Will it fall more heavily on the private sector to address the
imbalance in the longer term, as markets develop?
Yes, we intend to let the private sector manage the adjustments
that are needed. You see the movement in industrial country currencies has been
much less volatile than the movement of emerging market currencies. So the
intention is to move to the kind of volatility that industrial countries have
over time. But I do not see that happening overnight. Again, it is a process.
We have to develop our markets, make them deeper and more liquid, and we have
to develop the resilience of our real economy. But we will reach that. And the
bottom line is that there is no intention of creating massive hoards of foreign
assets like some other emerging markets.
- Central Banking
- Central Banking
‘Bifurcate bank CMD post, beef up board power to improve governance’
............Boards have to be beefed up by improving the board power. We have been recommending bifurcating the CMD position — the chairman who would be non-executive board member and a managing director who is the executive who oversees the operations. The finance ministry is a long distance from the bank and so you need a decentralised oversight process for it to work better. So strengthening the board is important. Managing directors should have longer tenures of three to five years. And finally, if you want the private sector talent to come into the public sector, the salary differentials should narrow. There is still some value in working with the public sector – the hire and fire system is less prevalent in the public sector. But it cannot be............
Rajan vows to make life easy for banks
...........Rajan drew attention to the Nachiket Mor committee on priority sector lending. “These are necessary changes in the system and should not be seen as tied to the monetary cycles,” he added. Banks have been asking the RBI to bring down pre-emptions such as SLR and do away with CRR or bring it down to below 3 per cent. The RBI governor admitted that the reduction in SLR would not make a significant impact as banks would continue carrying excess SLR for the “foreseeable future”.............
Not by small banks alone
............In his report on the financial sector in 2008, Rajan said the LABs not only served the un-banked segments in rural/semi-urban areas, but were also profitable. Therefore, the RBI’s latest guidelines on small banks can only be taken as a serious second attempt to establish and popularise the concept. Against this backdrop, the key question is whether small, local banks obviate the need for other kinds of private borrowing and/or lending institutions such as, for example, nonbanking financial companies (NBFCs) focused on the micro/small business segment and low income households?.........
RBI’s STPI Notification Circular A Death Knell For Indian IT Startups and SMEs?
.......Prior to this regulation, the software companies enjoyed a tax holiday schemes so they registered under STPI. But eventually when the tax holiday blanket was ripped off, the normal tax norms applied due to which many new startup tech companies chose not to register with STPI. Now due to this circular, the exporter or the tech companies must get registered with STPI to resume exporting. The circular is sure to cremate the IT startups and Small & Medium Enterprises if the government doesn’t take the hint. The repercussions of this circular have been poorly evaluated by the government. The issues that have propped up since the issuance of the circular are as follows......
Govt explores FMC-Sebi merger in reforms push
................The move shows the Centre's willingness to go ahead with the proposed changes, despite the concerns expressed by the Reserve Bank of India over dilution of its powers, something that was even articulated by central bank governor Raghuram Rajan. “A student can't be deciding what the syllabus is. Similarly , the RBI can't decide what it wants to do, that's a decision that has to be taken by the executive and legislated by Parlia ment,“ said a source familiar with the development.............
Kamalakar condemns RBI Governor Raghuram Rajan for opposing loan waiver by the Telangana Government
......... Telangana Congress spokesperson and former MLC B Kamalakar on Wednesday questioned the authority of RBI Governor Raghuram Rajan to oppose waiver of farm loans by the Telangana Government. Speaking to media persons at Gandhi Bhavan here, Kamalakar claimed that during UPA's rule, the RBI was not given so much of freedom to openly oppose the decisions taken by an elected government. He alleged that the RBI Governor's statement was issued ...........
RBI, Sebi to dry up funds for defaulters
........Rajan's efforts are aimed at preventing large borrowers from gaming the system by playing one lender against the other and by resorting to litigation to frustrate bank attempts at recovery of bad loans. Earlier this year, RBI put in place a system where banks got together to take action against borrowers who defaulted from paying to one lender. “We are working with Sebi in trying to ensure that wilful defaulters are prevented from accessing all kinds of funds and not just banking funds,“ Rajan said,...........
Read - TOI
Lok Sabha passes Sebi Bill to tackle ponzi schemes
..............The new law will empower investigators of Securities and Exchange Board of India (Sebi) to conduct search and seek information from suspected entities, both within and outside the country. However, as a safeguard, any search operation can be conducted only after approval of a designated court in Mumbai, where Sebi headquarters is based..............
Draft norms for small banks fail to cheer urban co-op banks
............any scheduled urban banks are raring to convert themselves into universal commercial banks. In fact, they are awaiting for a word from the banking regulator about the framework for conversion and the road ahead. Large banks such as Saraswat Bank and Shamrao Vithal Cooperative Bank have been preparing themselves for such an eventuality. Recently, Shamrao Vithal changed its logo to position itself as a savvy bank ready for competition. Its board of directors has informally discussed plans to convert to a private commercial bank.............
Syndicate Bank brass in damage control
...........Anjaneya Prasad, the senior-most executive director, had an interaction with regional managers through video conferencing, to convey that business will run as usual. "The message going down the line is, avoid loose talk. Speak to customers based on facts and focus on transacting the business,".......
Modi’s Financial Inclusion Plan
.........The idea offinancial inclusion is not new—it has been the buzzword at the Reserve Bank of India (RBI) since 2005, but without much success. In fact, several thousand new bank accounts, opened under pressure from RBI, remained dormant or did not have a single transaction. Why will it be different this time?
Banks to ensure minimum remuneration to BCs
............"With no further income coming to them after being paid a one-time remuneration for opening individual accounts, at least 45,000 BCs completely went untraceable by the banks. Unless the job of the BCs are made somewhat viable, the whole plan of taking the banking services to the unbanked areas will not take off," ........
What All Women Need to Know about Money
.................Many women also tend to give up their savings for financial emergencies in the family, which leaves them vulnerable and dependent. In this regard, the condition of working women is no better than homemakers, especially those who opt out of careers due to family responsibilities. Ms Dalal advised how women should start preparing in a manner that sustains them over decades. She enlightened them about insurance, wills and nominations.............
ICICI Bank launches special travel card for student going abroad
.............“The card offers both students and parents a convenient, safe and hassle-free way to manage their education-related expenses abroad. While it helps the students pay for expenses such as application fee, university admission and other course-related fees, hostel fee and day-to-day living expenses, their parents can reload the card from India. Also, the card allows withdrawal from ATMs across the globe in local currency,” ........
Wednesday, August 6, 2014
Why Rajan deserves AAA for a non-event policy - Latha Venkatesh
Interest rates unchanged: Raghuram Rajan vows to fight inflation to the finish
Inflation Warrior Rajan Refuses to Drop Rate Guard
.......The RBI policy is pragmatic given the macro-economic environment, said Chanda Kochhar, managing director and CEO, ICICI Bank. “The monetary policy statement is a reflection of RBI's continued commitment towards containing infla tion,“ she said. “The policy acknowledges the gradual improvement in economic conditions and the government's commitment to fiscal consolidation. The reduction in the statutory liquidity ratio is a welcome step as it would make more lendable resources available for various sectors of the economy .“
Read - ET
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