'Wage hike creates new challenges'

MUMBAI: The RBI has said that India's per capita income is likely to double between 2006 and 2017-18. While the increase is a positive development, it creates new challenges to the central bank in managing demand.  Speaking at the Harvard Business School, Boston, on Tuesday, Deepak Mohanty, Executive Director, RBI, said that India's per capita income, which had taken four decades to double by 1991, doubled thereafter in 15 years. "If India could maintain the current pace of growth, it will lift millions out of poverty and enrich the global economy. While India has come a long way, maintaining the current pace would itself be challenging and require continued reform efforts," he said.  Mohanty said that India will have to raise agricultural productivity. "Demand for protein-based products like meat, egg, milk and fish as well as fruits and vegetables have increased substantially with rise in income. The demand-supply mismatches in the case of these items have resulted in rise in their prices There is, therefore, a need for another technological breakthrough to give fresh impetus to agriculture," he said.  He said that increase in farm productivity will require a substantial part of labour force to be `ejected from agriculture' not only to improve the productivity in agriculture but also in the overall economy. "It is unconceivable that they can all be absorbed gainfully in the services sector. Hence, industrial employment will have to expand so also the relative contribution of industry" he said.  To support industrialization, he said it was necessary to to step up investment in infrastructure. "The Planning Commission suggests an investment of Rs 45 trillion (US $ 1 trillion) over the Twelfth Plan (2012-17). Given the large requirement of long-term funds, financing infrastructure would be a big challenge. Besides budgetary support, the bulk of the funds has emanated from banks" said Mohanty.

TOI

Infrastructure loans: Banks ‘averse’ to RBI counsel on ‘risk’ from nature

During these edgy times when ‘risk aversion’ is the marauding theme across the financial world, banks in India have only accreted risk, though of a different ‘nature.’..............

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RBI's PTC ruling to impact NBFCs' capital adequacy

MUMBAI: The capital adequacy and net interest margins (NIMs) of non-banking finance companies (NBFCs) could be under pressure following the Reserve Bank of India issuing fresh guidelines on securitisation, according to the latest report of Standard Chartered Bank. The RBI on Tuesday disallowed credit enhancements in transactions where banks buy loans from NBFCs. The regulator has proposed that banks follow the pass-through certificate (PTC) route instead. Currently, most priority sector portfolio sales by NBFCs to banks are done through the credit enhancement route. "For NBFCs, if the buyouts happen through PTCs rather than assignments, capital requirements will rise. For Shriram, tier-I capital adequacy will fall from 18% to 14.3%," said the Stanchart report. "This will have some mark-to-market implications for banks and will also impact their loan growth as PTCs are treated as investments while portfolios bought out by loan assignments are treated as loans," added the report. Unlike a credit enhancement transaction, there is an underlying asset to fall back upon in a PTC transaction.

ET

Police Commissioner release book titled “Reaching Out to the Unreached: the Corp Bank Way”

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Mangalore, Sep 29: City police commissioner, Seemanth Kumar Singh released a book titled “Reaching Out to the Unreached: the Corp Bank Way” based on Corporation Bank’s financial inclusion model and written by Dr. N. K. Thingalaya, Dr. M. S. Moodithaya and Dr. N. S. Shetty in the conference hall of Corporation Bank’s Corporate Office on September 29, Thursday. Dr. K. C. Chakrabarty, the deputy governor of Reserve Bank of India, wrote the foreword for this book, which also carries a message by Mr. D. K. Mittal, the secretary for the department of financial services, Ministry of Finance, Government of India.

Banks see huge fall in requests for demand drafts

The Demand Draft (DD), a popular financial instrument for transfer of funds or payment till recently, is losing its sheen. Banks are seeing a significant dip in the requests for issue of DDs, thanks to use of electronic mode of transfer and net-banking facilities. “The issue of DDs in banks is showing a 50 per cent decrease of late. I think, it is going the legendary Indian postcard way in terms of decreasing patronage from customers,'' Mr Anil Girotra, Executive Director, Andhra Bank, told Business Line. The use of DDs were inevitable till three-four years ago for payment of fees for recruitment tests, academic exams and Government transactions. “On an average, a bank branch used to issue 300-500 DDs a day earlier. But now we don't find the number of DDs crossing even a hundred in some branches,'' said a senior official of Punjab National Bank. Almost all major recruiters such as Public Service Commissions, banks and some academic institutions have now switched over to online payments making the DDs almost obsolete. The expanded use of National Electronic Fund Transfer (NEFT) and Real Time Gross Settlement (RTGS) also made DDs less popular. “Many businessmen are using the electronic mode now as it is faster. There is no blocking of funds. Clearance of DDs may take up to 10 days in some cases,'' Mr K.T. Ajit, a senior executive of State Bank of India, said.  Then, there is also a cost factor. The RBI had advised banks to reduce commission on DDs as early as 2007 though commission/service charges continue to be on the ‘higher' side, according to experts. As of now, commission for issue of DD up to Rs 10,000 is around Rs 50. For Rs 1 lakh it is upwards of Rs 400.  Banks are not forthcoming to share exact numbers on the dip in overall revenue due to decreased demand for DDs. 

HBL

Banks make U-turn on prepayment

The Indian Banks’ Association (IBA) lobby group has written to the Reserve Bank of India (RBI) arguing against the move, fearing mismatches in liquidity owing to early payment.....

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RBI penalises MNSBL for violating anti-money laundering rules

Ahmedabad : The Reserve Bank of India has penalised Gujarat-based cooperative lender Mansa Nagarik Sahakari Bank Ltd (MNSBL) for violation of Anti-Money Laundering (AML) guidelines. A penalty of Rs 1 lakh was imposed on Gandhinagar- headquartered MNSBL for violating the RBI''s instructions for submission of reports on cash transactions above Rs 10 lakh to the Financial Intelligence Unit-India (FIU-IND) under the AML guidelines. The RBI had issued a show-cause notice to the bank, in response to which the bank had submitted a written reply. "After considering the facts of case and the bank''s reply, as also personal submissions in the matter, the Reserve Bank of India came to the conclusion that the violation was substantiated and warranted imposition of the penalty," an official statement said. Over a dozen cooperative banks from Gujarat have been fined by the RBI in the recent past for violation of AML and KYC norms.

MSN News 

RBI stall at exhibition to create awareness on use of currency

RBI, Chennai, has put up a stall at the on-going Government Exhibition at Bose Maidan here to create awareness among the public on proper use of currency, identification of counterfeit notes etc. Indian Bank has been entrusted with the work in the stall at present. The stall, according to a press release, can be used for the purpose of exchange of cut and soiled notes, issue of fresh currency of Rs. 5, 10, 20, 50 and 100 denominations, issue of new coins of Rs. 1, 2, 5, & 10 denominations and issue of Rs. 5 commemorative coins (marking 1000^th  year of Thanjavur Brigadeeswarar Temple). On the first day of inauguration on Saturday, coins to the tune of Rs. 5 lakh were distributed to the public. Indian Overseas Bank and Axis Bank will join the stall management after September 25. The stall was inaugurated by G.P. Borah, General Manager, Issue Department, RBI, Chennai.

HBL  

Fiscal consolidation crucial for 9% growth: RBI

The Reserve Bank of India (RBI) has said the growth target of nine per cent envisaged for the 12th Five-Year Plan can be achieved only if inflation is brought down, and supply-side issues in agriculture are resolved. "Without bringing inflation down from the current level, it would be difficult to sustain a high level of growth. This would require greater monetary-fiscal coordination and the alleviation of supply constraints, particularly in agriculture," said RBI Executive Director Deepak Mohanty. Mohanty said achieving nine per cent growth between 2012 and 2017 would be a challenging task, since local factors would also play a key role in deciding GDP (gross domestic product) growth. "Hence, growth would have to be raised by an additional percentage point per annum, which is challenging because it would require a conducive global environment and policy reforms at home," he said. Aiming to bring inflation down, the central bank has raised the repo rate by 350 basis points in the last one and a half years, and this has led to moderation in growth. Inflation has remained much above the central bank’s comfort zone. The wholesale price index rose 9.7 per cent in August on an annual basis, compared with 9.22 per cent in July. "Empirical evidence suggests the threshold level of inflation is in the range of 4-6 per cent," Mohanty said in Boston. Emphasising on increasing agricultural productivity, Mohanty said there was a need to beef up rural infrastructure to remove bottlenecks in the supply chain. "There is, therefore, a need for another technological breakthrough to give fresh impetus to agriculture. At the same time, greater emphasis would have to be placed on the management of the supply chain, with investment in rural infrastructure," he said. The central bank also called for an increase in agricultural growth to four per cent, compared with the current three per cent right. The regulator also said workforce needed to be removed from agriculture, and absorbed by the manufacturing sector. "A substantial part of this labour force would have to be ejected from agriculture not only to improve productivity in agriculture, but also in the overall economy," Mohanty said. It is inconceivable that they can all be absorbed in the services sector. Hence, industrial employment would have to expand, as also the relative contribution of industry, Mohanty said.

BS

States holding up plan to recapitalize regional rural banks

An RBI panel had recommended all RRBs be moved into the CBS network by September. RBI’s annual report released on 25 August said out of 82 RRBs, CBS has been fully implemented in 45, and it is in progress in the rest of them. All this pushes up RRB capital needs in the long run and a viable alternative is needed to recapitalize them, bankers said....

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Redesigning Regulations : Lessons from Crisis

''Maintaining growth without controlling inflation touch task''

Boston : The Reserve Bank has said sustaining high level of economic growth is difficult without controlling inflation. Speaking on the ''Indian Economy- Progress and Prospects'' here, RBI Executive Director Deepak Mohanty said, "Without bringing down inflation from the current level it will be difficult to sustain a high level of growth. This will require greater monetary-fiscal coordination and alleviation of supply constraints." He said the demand-supply mismatches in case of protein- based items as well as fruits and vegetables have resulted in price rise of these items. "There is a need for another technological breakthrough to give fresh impetus to agriculture," Mohanty added. Food inflation, which account for 15 per cent in the overall inflation, was at 8.84 per cent for the week ended September 10. Inflation remained over 9 per cent since December, 2010. It touched a 13-month high of 9.78 per cent in August. The Reserve Bank of India has raised key interest rates 12 times since March 2010 to contain inflation. Corporate India has said that frequent rate hikes, which have led to an increase in the cost of borrowings, are hindering fresh investments and affecting economic growth. The country''s economic growth was 7.7 per cent in the April-June period, the slowest in six quarters. Growth in industrial production also fell to 21-month low of 3.3 per cent in July. Mohanty said in the current fiscal economic growth is expected to be around 8 per cent. "In 2011-12 growth is expected to be about 8 per cent," he said. He emphasised on the need for the government to revert to its pre-crisis fiscal consolidation path without compromising on the quality of fiscal correction.

MSN News

India can sacrifice some growth to tame inflation: Central Bank

ISTANBUL: India’s monetary policymakers are prepared to sacrifice some economic growth in order to control inflation and inflation expectations, H. R. Khan, a Deputy Governor at the Reserve Bank of India, said. The RBI raised interest rates by 25 basis points on Sept 16, the twelfth increase since March 2010, and the tone of the central bank’s review was perceived as hawkish with economists expecting another rate rise before the year end, despite plenty of signs that the economy is slowing. “Most of the time India’s growth hasn’t fallen below 6 and 6.7 percent, but there is a huge upside to inflation,” Khan said on the sidelines of a financial conference in Istanbul.  “In the short term there could be a trade off. But in the medium and long term, low and sustainable inflation is necessary for sustaining the growth.” “So if there is a bit of sacrifice on the growth side we don’t mind? but inflation and inflation expectations have to be controlled,” Khan said.  Khan said an upside to the current global problems lay in the possibility that commodity prices could ease, which could give the RBI cause to reassess its stance. “Hopefully commodity prices do soften,” he said adding, “That would give us some input to think of our stance.”  Gross domestic product growth in Asia’s third-largest economy slipped to 7.7 percent in the three months through June.  RBI Governor Duvvuri Subbarao defended the 18-month monetary tightening campaign on Monday, calling the country’s inflation rate of about 9 percent “inimical to growth.”

Arab News

RBI says monetary tools can do little to tame inflation

Reserve Bank of India (RBI) finally admitted that inflation was now going beyond its control and there was little it could do about it with monetary tools. Speaking at a conference on Climate Change impact on Wednesday, RBI Deputy Governor Subir Gokarn said, “Continuing high energy prices have reduced the space that monetary policy has in terms of responding to inflation.” Gokarn’s comments have come close on heels of Governor D Subbarao indicating at Stern School of Economics that containing inflation to less than 6 per cent remained its primary objective. Subbarao said, “With WPI inflation ruling above 9 per cent, we are way past the threshold. At this high level, inflation is unambiguously inimical to growth; it saps investor confidence and erodes medium term growth prospects. RBI’s monetary tightening is accordingly geared towards safeguarding medium term growth even if it means some sacrifice in near term growth.” But Gokarn’s fear of inflation persistence stemmed from the fact that energy prices remained at over $100 dollars a barrel. Besides, Gokarn pointed out that energy, particularly fossil fuel energy consumption has been on the ascent in the country. Energy consumption per person in 1995 was just 1295 units. Quoting data for 2010, he said, consumption averaged 4647 units. He said, “life style changes have led to increased demand for energy and economic structures leading to inflation.”  He also said that there were also other worrying impacts of climate change on inflation. He said that agriculture yields in the country was no longer rising since rainfall was reducing. Quoting 50-year data from the Met department, Gokarn said there was a sharp reduction in rainfall particularly during July and August months. Rainfall in this period was critical for farm out put and if this pattern continued, he said there could be a loss of 15 per cent and 10 per cent in rice and wheat yields by 2020.

FC

RBI delegation to visit Pakistan in October

KARACHI: A delegation of Reserve Bank of India (RBI) will visit Pakistan in the first half of October to discuss the modalities for opening of bank branches in India and Pakistan on reciprocal basis. This was stated by Deputy Governor, RBI, Dr Subir Vithal Gokaran, during his meeting with Commerce Minister Makdoom Amin Fahim in Mumbai. The Minister is leading 60-member delegation of top exporters on the invitation of his Indian counterpart Anand Sharma. According to the information reaching here Trade Development Authority of Pakistan (TDAP) on Wednesday, Federal Minister for Commerce has stressed that both the countries should fast track the process of opening of branches to facilitate the business community and to increase the trade volume between the two countries. Gokaran expressed his optimism and agreed for increased cooperation between the two regulators. Secretary Commerce Zafar Mehmood, CE TDAP, Pakistan High Commissioner to India and a representative of State Bank of Pakistan were also present in the meeting.

http://www.brecorder.com/pakistan/business-a-economy/29755-rbi-delegation-to-visit-pakistan-in-october.html

UID valid KYC for all bank accounts

The Reserve Bank of India (RBI) has allowed banks to accept letters issued by the Unique Identification Authority of India (UIDAI) for Aadhaar numbers to open savings accounts with no credit limits. The regulator had in January asked banks to treat all savings accounts opened using Aadhaar letters as so-called no-frills accounts, in which the aggregate credit is limited to Rs.1 lakh in a financial year. Withdrawals and transfers are limited to Rs.10,000 per month and account holders cannot have more than Rs.50,000 in balance at any point of time. The January notification came a month after the finance ministry amended the Prevention of Money Laundering Rules, 2005, to notify Aadhaar as adequate to meet know-your-customer (KYC) norms for opening bank accounts, putting it alongside the passport, driving licence, permanent account number (PAN) card, and the voter’s identity card. Mint reported on Tuesday that RBI’s January notification had created confusion among banks over opening accounts using the Aadhaar numbers. The new notification, published on RBI website on Wednesday, “will streamline the entire process of opening Aadhaar-based bank accounts and provide impetus to Aadhaar-based transactions in the financial sector,” said a government official involved in talks with RBI. “The notification will also clear the confusion that banks had about using Aadhaar as KYC,” the official said, asking not to be identified. The UIDAI aims to provide unique identification numbers to all residents of India under the Aadhaar project. Some 37 million people have been enrolled so far; the Unique Identification Authority targets issuing 600 million numbers by 2014.

Mint

Reliance Bank will challenge Public Sector Banks

The announcement by the Reliance group to enter banking sector has made ripples among the staff and officers of the Public sector Banks. They believe that their entry will make a change in Indian Banking industry to move the people away from Public Sector Banks ultimately resulting in losses and closure of PSBs. This amounts to the reversal of Nationalisation Policy. In 1969 the banks in India were nationalised. The state control over the banking sector has helped the government to run the economy. More social upliftment programme were implemented through public sector Banks. A decade back Reserve bank of India granted new licenses for banking. Under liberalisation and globalisation more private players and international banks have jumped in the huge Indian market. There is resentment among public that the public sector banks are not providing efficient services. It is alleged that the Banks discriminate between low value and high value banking customers. They provide loan facilities only to asset holders ignoring the meritorious entrepreneurs. Even the educational loans are not provided to eligible persons. But the bank officers feel that they are indeed doing a good service considering the work load imposed on them. With the introduction of private banking there should be stiff competition to improve service. But it has not happened in the past. The private banks have become elite banks by charging more with the affordable sections of the people. This has resulted in hijacking the high value customers to Private banks. But public sector banks were not much affected since there is still more space for them in the huge market. They enjoy a near monopoly among the middle class people. Now India is having 27 PSBs 22 Private Banks and 31 Foreign banks. This number may be misleading. At present most of the customers are with PSBs. A news is spread that the RBI plans for greater competition in banking sector to widen the availability of banking services to rural India which has little or no access to formal loans and saving facilities. This is to prepare grounds for allowing more private banks. There is always a lobby in the government to encourage Private sector and discourage Public sector enterprises. Some ministers tried to sell profit making PSUs. Now if rural services are to be enhanced it can be done by expanding financial services through Post offices which have a wider network and establishment in India. Some initiatives in this direction were introduced by former telecom minister A,Raja. But such moves are not continued. The big news now is that Anil Ambani’s financial services group Reliance Capital is to start a New Bank. This NBFC worth of n Rs. 8,000 crore is involved in mutual funds, pension funds, insurance, corporate finance, broking and portfolio management. They have already built an empire of 2 crore customers and 8,000 offices with a staff strength of over 18,000 people. Therefore their entry in Banking is already half completed. Whatever may be arguments for and against the Private Banks, the entry of Reliance in Banking is a welcome step. The Government should take necessary measures to protect the interests of PSBs by preventing unfair means by private players in promoting business in this sector . The people trust is with PSBs. At the same time Reliance have also developed a trust among investors. The real competition is set to unfold. 

TruthDive

Dismal track record of education loans in MP irks govt

The figures tell it all. Banks in Madhya Pradesh take education loan very lightly: the 47 of them operating in the central Indian state have so far disbursed merely Rs 40 crore in aid of those aspiring to study. This, when their network is a solid total of 5,613 branches (including private, regional, rural and cooperative banks) and their deposit base is an impressive Rs 156642.15 crore. Against the 2011-12 annual credit plan to fund 60,000 students, bankers have so far sanctioned Rs 40.07 crore to 1,559 students. Of them, Rs 12.90 crore has been disbursed to girl students. Clearly, it is not just the rural housing and no-frill accounts for poor that remain utterly neglected banking areas in the state. Together, these prompted the state government on Wednesday to lambast the bankers. The figures on education loans read so minuscule that the administration cautioned the banks of reporting the matter to the Reserve Bank of India. Among the banks, the private ones stand worst when it comes to sanctioning education loan. In fact, many of them don’t have even a single case during the year. The case is better with regional rural banks and state-owned cooperative banks. The state government is perturbed. “We fail to understand why the banks are not interested in education loans despite the RBI having exhorted them to improve on the matter,” says Chief Secretary Avani Vaish. “We want RBI should take up the matter seriously. We are ready to offer guarantee in the case of NPAs,” he told Business Standard after a meeting here with state-level bankers committee. Bankers, on their part, cite reasons for the situation. One, they note, is rising instances of non-performing assets in education loans.

BS

Govt to tighten noose around MLM cos after probe

Multi-level Marketing (MLM) companies may soon find it difficult to survive. The government will finalise exclusive regulations for MLM companies after its probe, reports CNBC-TV18.  According to government probe there are lacunae in the existing regulations while there are serious fraud investigation offices probing many MLM companies.  Meanwhile, both the Ministry of Corporate Affairs (MCA) and Reserve Bank of India (RBI) are framing rules to supervise MLM firms. SFIO has already submitted initial analysis on MLM companies to MCA.

Moneycontrol

The rupee under pressure

....On Monday, the rupee traded around Rs.49.60 to the dollar, perilously close to the psychologically important Rs.50 mark. In the current phase of rupee depreciation, the RBI does not appear to have intervened aggressively, possibly because it wants to conserve its firepower for a future contingency....

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