Remove entry bar for new banks: PMEAC

New Delhi: Even as Reserve Bank of India (RBI) is planning to issue just a couple of licences after it finalises the norms for the entry of new banks, C Rangarajan, chairman, economic advisory council to the Prime Minister, has suggested that there should be no bar on entry of new banks. “If the banking system is to remain competitive, there should be no bar on entry of new banks .” 

FE

RBI to Take Second Quarter Monetary Policy Review

Reserve Bank of India (RBI), the apex banking regulator of India, has announced that it will meet to take call on second quarter review of monetary policy on October 25. RBI has scheduled the meeting with the chief executives of major scheduled commercial banks at 11.00 a.m. on October 25, 2011 at the Central Office, Reserve Bank of India, Mumbai.  After the meeting Dr. D. Subbarao, Governor, Reserve Bank of India will announce the Second Quarter Review of Monetary Policy 2011-12 on same day. RBI has announced the first quarter review of monetary policy on July. Amid spiraling inflation, the central Bank of India has hiked key policy rates by 25 basis points while announcing the mid-quarter monetary policy review, September 2011. According to this report, RBI had hiked the repo rate by 25 bps to 8.25% from 8%, and reverse-repo rate stands adjusted to 100 bps below the repo rate at 7.25% and the marginal standing facility (MSF) rate to 9.25%. Despite the strong monetary policy stance it failed to tame inflation. In last 18 months RBI has increased the key policy rate 12 times. RBI has raised the key policy rates by 350 percentage points to control inflation, which is sharpest upper movement in interest rate around the world. Even though, India is facing sharpest inflation rate amongst the emerging economies. Till now rain is normal within the country, although flood is affecting the production of wheat in Bihar. The production of food grain is expected to increase this year. RBI is alert and watchful on the problem of inflation and depreciating currency. Upcoming month is crucial for the RBI to intact the momentum of growth in adverse condition.

http://goindocal.com/rbi-to-take-second-quarter-monetary-policy-review--go-2662.htm

A Conversation With Ela R. Bhatt

Ela Bhatt, a Gandhian and a lawyer who founded the Self Employed Women’s Association in Gujarat, is sometimes referred to as the mother of microfinance. She helped start Mahila Sewa Co-operative Bank in 1974, two years before Muhammad Yunus began the project that would later become Grameen Bank. Ms. Bhatt, who is also a member of The Elders, was recently appointed to the board of the Reserve Bank of India, the country’s central bank....

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Rate hike seen

The Reserve Bank of India is seen hiking key rates by a further 25 basis points next month as food prices continue to be at elevated levels despite a decent monsoon and good agricultural performance. The apex bank is scheduled to meet on October 25 for the second quarter review of monetary policy. inflation bias,” said Pan. In a report on Thursday, Hemindra Hazari and Manuj Oberoi of Nirmal Bang Institutional Equities noted the key takeaways from a meeting with RBI’s deputy governor K C Chakrabarty: “RBI to maintain its hawkish stance on inflation and is willing to sacrifice economic growth in the short term for its broader objective of sustained  development in the long run.” The RBI has already hiked interest rates 12 times since March 2010 to control inflation.  “Unless we see the global situation worsening, we are expecting a rate hike by the RBI by 25 basis points,” said Chakrabarty.

DNA

Higher gold loan rates will affect customers, says Muthoot Finance MD

... RBI has recently appointed a committee to study whether banks should be permitted to buy out from NBFCs, based on which there could be a re-think on the earlier directive, he said. The committee will be headed by Mr M.V. Nair, Chairman, Indian Banks' Association. ....

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Onus of job creation on industry

...Good physical infrastructure, a progressive exit policy, structures to support clean and green technologies, appropriate investment incentives, and business friendly approval mechanisms will be the cornerstones of this new initiative.........

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Banks may incur MTM losses as yields shoot on higher borrowing

A surge in the yields on government securities in the last two working days of the current quarter will mean that the banks will now face the possibility of incurring mark-to-market losses on their investment, experts said on Friday. The government had yesterday announced a higher-than-planned borrowing programme for the second half of the current financial year. As a result, the yield on the 10-year benchmark government bond shot up 10 bps to close at 8.4 per cent, while yields on the second-most liquid security, the 11-year paper, went up by 8 bps. The market was not anticipating Rs 53,000 crore of extra borrowing by the government, which pulled the bond prices down. According to dealers, the most hit will be the banks that bought papers in the expectation that yields will cool off. This is because the government has been maintaining that it would stick to the budgeted borrowing target of Rs 4.17 lakh-crore this financial year. According to the issuance calendar, government borrowings will be at Rs 4.7 lakh crore this financial year. "There may be an MTM hit, as yields have hardened over the last quarter," says T S Srinivasan, general manager, Indian Overseas Bank. This is the third quarter in line when hardening yields will hurt banks' treasury. "Yields may cross 8.5 per cent unless RBI opts for a buyback in coming months. The yield curve will steepen now, as there are more issuances in 10-14 years' category than smaller durations," he adds. As mandated by the RBI, banks cannot hold more than 25 per cent worth of demand and time liabilities in held-to-maturity category. Banks need to provide mark-to-market for securities held in available-for-sale and held-for-trade categories and not for HTM category.

On Wednesday, RBI Deputy Governor Subir Gokarn issued a hawkish statement, pushing the yields go up, as the country's central bank declined to indicate any signal of pause in the rate hikes. RBI has hiked the key policy rate 12 times in the last 18 months – a total of 350 bps in the repo rate though effective tightening was 550 bps – to tackle inflation that hovered around the double digit mark for nearly 18 months. RBI will meet again on 25 October to review the monetary policy. According to treasury officials, banks that had recently acquired government bonds will feel the pinch more. "The extent of the mark-to-market loss will depend on the composition of the available for sale portfolio. The bank that had recently acquired government securities will be impacted more,&" notes a senior official from a public sector bank. However, banks tend to reduce the holding in AFS and held for trade categories in rising interest rate scenario. In such case, the extent of depreciation will be limited. "Depreciation," Pawan Bajaj, general manager, Bank of India, "may not be significant as most banks are not holding many securities in AFS category. The average tenor in AFS category is around 2.25 years." Going ahead, some of the bankers expect yields to come down, as the present level of yield will make government borrowing expensive.

BS

National Housing Bank to seek nod for raising funds thru ECBs

..NHB will soon approach the Finance Ministry and the Reserve Bank of India (RBI) to allow it to raise ECBs, Mr R.V. Verma, Chairman and Managing Director, NHB, told Business Line in an interview here....

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Sasan Power gets RBI nod to raise $2.2 billion

Reliance Power said it has received approval from the Reserve Bank of India to raise about $2.2 billion from the US Exim and Chinese banks for its 3,960-MW Sasan ultra-mega power project in Madhya Pradesh. The estimated cost of the project is about Rs 19,500 crore. RPower had signed memorandums of understanding with the US Exim for $5 billion in October last year and the Chinese banks for $12 billion in November. The interest rate for the US Exim loan is about 3.5 per cent and from the Chinese banks close to 5.5 per cent, with tenures of 12 years with a moratorium of four to five years during the construction period.

HBL

Whose ID is it anyway? Chidu’s or Nilekani’s? And RBI says no

....It seems as if Nandan Nilekani’s grandiose Aadhaar Unique ID project will not be all that it is cracked up to be: a simple 12-digit number that will serve as both identity and authentication for all 1.2 billion-and-odd resident Indians......

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RBI chief isolated in battle against inflation

For months, the hawkish, inflation-fighting RBI has been in a shrinking minority of its emerging market peers. Now the recently re-appointed central bank governor is facing stiff opposition to his crusade at home. As recently as last week, the RBI made clear it will stick to its anti-inflationary stance despite censure from the Congress-led government that is signalling 12 rate rises within 18 months are hurting growth and its electoral prospects. India's inflation is near 10%, one of the highest among major economies in the world. It is among a handful of countries such as Kenya and Nigeria still raising rates while the world frets over headwinds from a European debt crisis and a sputtering US economy. Neighbours in Asia have turned dovish, some such as Brazil and Turkey have already cut interest rates. Subbarao appears undeterred by the criticism. RBI sources say he is determined to keep policy tight, maybe even tighten it further. "Growth has a floor, but inflation has no ceiling," said a senior RBI official with direct knowledge of monetary policy making. "If we don't do anything, inflation expectations will rise." Until now, the government and the RBI have largely been on the same page when it comes to monetary policy, with near double digit inflation not only an economic 'worry but a political headache as prices of foods and fuel jump. But over the past few weeks, criticism and advice for the RBI chief have been more blunt than usual. "I have had hesitation on a rate hike this time which in the past I did not", Kaushik Basu, chief economic advisor to the finance ministry, said after the RBI raised the repo rate by 25 basis points on Friday. "I would personally, yes, vote for pause", he told reporters when asked what the RBI should do at its October policy review. Basu is a top adviser in the finance ministry and is known to be not only close to finance minister Pranab Mukherjee but also a key strategist on economic policy, one who often echoes Mukherjee's thinking on key issues. The top adviser, who was widely believed to be in the race for the RBI top job, has asked the central bank "to think out of the box" and consider the examples of Brazil and Turkey that cut rates to protect growth. Montek Singh Ahluwalia, the deputy chairman of Planning Commission and Prime Minister Manmohan Singh's close advisor, also questioned Subbarao's monetary action. 

The Sunday Guardian

Teller-A.T.M. Hybrid Takes Banking to Rural India

Time was, banks employed armies of human tellers. Later, they replaced many of them with automated teller machines. Now, India is using a hybrid of the two — the human A.T.M. — to expand banking to its vast rural population......

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Central Bank Of India : 144th SLBC Meeting

State Level Bankers’ Committee, Madhya Pradesh held its 144th meeting today at the Zonal Office of Central Bank of India, Bhopal. The meeting was chaired by Shri Avani Vaish, IAS, Chief Secretary to Govt. of M.P. and attended, amongst others, by Shri R. Parasuram, IAS, Additional Chief Secretary, Shri R.K. Dubey, Executive Director, Central Bank of India, Shri P.K. Panda, Regional Director, Reserve Bank of India, Shri A. Krishna Kumar, Managing Director, State Bank of India, Shri Ashok Shah, Commissioner-Institutional Finance and Shri Pravin Rawal, Deputy Secretary, Ministry of Finance, Govt. of India. Shri B. Mondal, General Manager, Central Bank of India and Convenor, State Level Bankers’ Committee, Madhya Pradesh, conducted the meeting and welcomed the dignitaries and other participants. The meeting reviewed the performance of banks during the first quarter ended June, 2011, 

Zee News

Govt officials, bourses to discuss Jalan panel proposals

Senior government officials and top stock exchange executives will discuss tomorrow the long-pending proposals made by a Sebi-appointed panel for sweeping changes on how the bourses should be owned and run. The recommendations of the committee, headed by former RBI governor Bimal Jalan and submitted to market regulator Sebi in November last year, would be discussed at a workshop organised by the industry chamber Ficci here. Those expected to participate in the discussions include R Gopalan, Economic Affairs Secretary R Gopalan, Joint Secretary (Capital Markets) Thomas Mathew, and Jalan himself. Besides, top executives of three national stock exchanges -- NSE, BSE and MCX-SX -- as also representatives from a host of smaller bourses and other market entities are expected to be present alongside other industry experts. The implementation of the recommendations made by the Jalan committee has been pending for almost a year now. Among other proposals, it has strongly recommended capping the profitability of bourses and barring them from getting listed to safeguard their front-line regulatory role. The committee, set up in January 2010 for review of ownership and governance norms for market infrastructure institutions, submitted its report to Sebi in November last year. Sebi then invited comments on it till December 31. The proposals generated intense debate and opposition was raised to proposals like non-listing of bourses and cap on profitability, terming them as anti-investor measures. In the wake of stiff opposition to the proposals, Sebi later put the ball in the government's court. Thereafter, a committee was set up by the Ministry of Corporate Affairs (MCA) to discuss the proposed rules, which held its consultations in May. In its meeting with the representatives from the bourses, industry bodies, accounting bodies and other market entities, the MCA sought suggestions a roadmap for segregation of regulatory and commercial roles of the exchanges. It was proposed that steps need to be taken to keep the front-line regulatory role of the bourses unaffected by their profit-making and other business interests after they become publicly held companies following their listing. On its part, the Sebi board has not been even discussing the matter in its last few board meetings, as it was waiting for suggestions from the government on the contentious issues emanating from the Jalan committee proposals. It is expected that the matter could come up for the Sebi board's consideration in its next meeting, once the government takes a final view after consultations with various parties.

BS

Being sensible

“Time running out to find solutions for global crisis, warns RBI chief” (Business Line, September 24) brings up an interesting fact. India has crossed many mile stones — $1 = Rs 21 in 1991 to $1= Rs 50. This is even after the US dollar is in doldrums (by printing more dollars). Dr Subbarao, Governor, RBI, the Finance Minister and the economist Prime Minister always talk about the US and the global economy and don't seem very concerned about the state of the Indian economy. When they could reduce the interest rates for the benefit of unscrupulous real estate and crony politicians in one step, why are they taking 13 steps to come to the old level of interest rates? The RBI is intervening when the rupee is going up and watching tamasha when the rupee is going down. What happened to the shareholders of the erstwhile GTB merged into OBC? 

Murthy (HBL)

Operation inflation

This refers to Subir Roy’s column “Old remains gold in fighting inflation” (Value for Money, September 28). The author, while elaborating on former Reserve Bank of India governor I G Patel’s views on inflation, has underlined the importance of balancing monetary tools with fiscal instruments to control inflation. While RBI’s initiatives in controlling inflation can be commended, its approach is flawed on several counts. First, RBI’s stance of treating inflation purely as a monetary phenomenon is completely incorrect in the Indian context. Second, the Bank has been merely been raising repo and reverse repo rates at periodical intervals. What about other instruments of monetary policy? During the seventies and the eighties, RBI controlled inflation through other instruments of monetary policy — selective credit control (SCC) measures, open-market operations and moral suasion, to name a few. Of these, SCC directives to commercial banks have had the desirable effect in monetary expansion by way of bank credit. Finally, RBI should have apprised the finance ministry of the futility of a monetary policy without the back-up of a prudent fiscal policy. IG’s prescription to combine fiscal discipline with monetary policy, thus, is quite right.

K V Rao, Bangalore

Subir Roy wrote succinctly about I G Patel’s views on how to tackle inflation. IG was not dogmatic about any economic ideology but was a believer in Karl Popper’s Open Society principles. His experience as director of London School of Economics is important to analyse again in the present context of volatility in the world economy. Policy-makers need to be flexible in the allocation of resources at margin. When an economic downturn is expected because of the downturn in the global market, policy-makers should be flexible to shift resources towards the “less tradable” rural sector in which growth is likely to be more equitable. This will also help in dampening inflation.

Chandrashekhar G Ranade, Washington DC (BS)

Profiting from inflation

RBI Governor D Subbarao recently commented in New York that “inflation has been fairly stubborn”. Over the last few months, there has been growing pessimism on the efficacy of monetary policy to tame inflation. Reasons proffered range from supply-side constraints, increasing rural income and changes in dietary habits, to conspiracy theorists proffering that developed countries with unmanageable debt burdens are inflating their way out of trouble and passing the contagion to their less developed brethren. Whatever be the reason, the fact remains that the last 20 months have seen the highest inflation in the last 20 years in India. Many businesses may believe that inflation may not be a bad thing as long as they can pass on the cost increases to their customers as price increases. And these businesses are not wrong as inflation does have beneficial effects. Company revenues increase not only in nominal terms but also in real terms. This can result in a positive effect on wages and employment, which can lead to further demand and more economic growth. For governments with unsustainable debt overhang, it can lower the real burden of servicing debt. However, any benefit from persistent high inflation is an illusion, and, in fact, has serious negative impact on businesses. It retards productivity growth as managerial decisions fall prey to the so called ‘money illusion’ (for a more detailed discussion of the topic, please read the Boston Consulting Group white paper, Why Companies Should Prepare for Inflation, November 2010) or the tendency to mistake price increase for real gains. Because managers believe they are doing better than they actually are, they become complacent and do not take a hard look at their businesses. Inflation also encourages underinvestment and distorts allocation of resources as depreciation allowances, based on historical costs, prove inadequate. BCG research shows that despite initial positive economic effects of inflation, total shareholder returns (TSRs), which combine share price appreciation and dividends, are typically disappointing, particularly when measured in real terms. Also, companies that destroy more value relative to their peers during inflationary period are much less likely to catch up and compensate their shareholders when inflation falls. Thus, inflation creates losers—and winners of those who manage its risks well. Inflation can change the rules of the game by establishing new sources of competitive advantage—from advanced pricing and sourcing strategies to superior asset productivity. When hit by inflation, companies with the highest capital can end up as big losers as they are unable to generate additional ‘inflationary’ cash for their high asset-intensity businesses or to replace old assets and end up making sub-optimal capital allocation and investment decisions. The sure winners are those companies that increase price faster than rate of inflation to provide for not just cost increases, but also increased valuation of assets and thus protect gross margins from erosion by inflation. It was just a little over 24 months ago that the country was patting itself on the back, having come out strongly from the economic crisis of 2008 that had severely crippled the economies of many developed countries. Inflation was negligible and the country was looking forward to accelerating GDP growth towards double digits. Within 6 months, the economy hit the inflation bump, with the headline (WPI) inflation rate going over the 9% mark. Twenty months later, despite several rate hikes by RBI, we see no respite. No wonder Subbarao was forced to make his comment. For Indian businesses, this raises a fundamental strategic question: When will the inflation moderate, and how aggressively should they react to it? Many experts believe that we are in for a period of sustained inflation due to an unprecedented combination of global and local conditions. Clearly, India faces major supply-side issues that are driving inflation, particularly non-food manufacturing inflation, which has remained high even as food inflation has  moderated somewhat in recent weeks. This is unlikely to change in the near term, unless the slowing investment cycle reverses itself and global commodity prices fall significantly. Crude oil prices are, of course, a fly in the ointment, and can have a dramatic effect up or down on headline inflation. This only strengthens the case for Indian companies to make their business models ‘inflation proof’. To do so, they have to adopt a four-step programme. The first step is to assess the risks, and develop a detailed understanding of potential exposure to different inflation scenarios and identify the specific areas of weakness, which may vary from business to business or one product to another. The second step is to know the real costs and prices—and avoid money illusion mentioned earlier. Companies should closely track inflation-adjusted financial indicators that track the real performance of their businesses. The third step is to protect gross margins. The key to this is superior pricing strategies and processes, which could range from creative contract design to pass inflation risks to customers, eliminating price leakages, reacting quickly and frequently to raw material price increases and reducing price sensitivity of customers by unbundling products and services, etc. The fourth and final step to become an inflation winner is to safeguard investments, which is particularly relevant for high capex companies. This calls for adopting a conservative financial policy of low leverage, increase asset productivity and carefully prioritise planned investments. The last time Indian companies faced inflation rates close to current levels for a prolonged period of time was 20 years ago. Very few of the leaders who had navigated through that period remain at the helm of their companies. If inflation is going to become a ‘given’ in the medium term in India, today’s business leaders have to learn not just to live with it, but how to win in the market place. As Bruce Henderson, the founder of BCG, said in one of his essays, while the negative impact of inflation is quite clear with real profits being squeezed despite higher profitability, it also offers unique opportunity to differentiate one’s performance. The winners are those who will find the way to profit from inflation! 

FE

RBI pulls up Islamic bank

The Reserve Bank of India has asked the country’s first and only Shariat-based NBFC, the Kozhikode-based Alternative Investments and Credit Limited (AICL), to commit sacrilege. The NBFC, for which charging interest is ‘haraam’ or forbidden, has now been asked to publish an interest rate structure just like any other conventional banks. The charge is that the AICL, which has been operational for over a decade, has flouted RBI’s fair practices code under which a financier has to specify the interest structure. The AICL has been given two weeks to respond to the RBI’s directive. “We have met RBI officials in Mumbai last week and put our points across,” said the AICL managing director, Mr K.M. Abdul Salam. “Shariat teaches us to abide by the law of the land. But we also have our spiritual commitments,” Mr Abdul added. The AICL’s immediate challenge is to find a middle-path between Shariat principles and existing banking regulations, which does not recognise interest-free transactions as a banking activity. Instead of interest, an Islamic bank like AICL takes funding charges, which is the share of profits the borrower has to pay to the lender. Banks based on Shariat principles function on the basis of a participative finance model. The borrower needs to pay only if he had earned a profit. In case there are unavoidable losses any year, the borrower need not pay any funding charges. 

DC

The Economic Experts Who Advise our PM



Duvvuri Subbarao, Governor, Reserve Bank of India



Subbarao is a 1972 batch Indian Administrative Service (IAS) officer of Andhra Pradesh cadre. He is the 22nd and current Governor of Reserve Bank of India, serving under Prime Minister Manmohan Singh. He did his schooling from the Sainik School in Korukonda, Andhra Pradesh. He graduated in Physics B.Sc Hons. from Indian Institute of Technology Kharagpur (class of 1969) where he was the recipient of Director's Gold Medal. He received a M.Sc degree also in Physics from Indian Institute of Technology Kanpur. Subbarao topped the IAS examination in 1972 and was assigned the Andhra Pradesh cadre. He later did a Masters degree (MS) in economics from Ohio State University, United States and was a Humphrey Fellow at Massachusetts Institute of Technology. Although the RBI governor works autonomously, his role in shaping the country's economic policies cannot be overstated. Subbarao has earned more critics in recent months for supposedly killing growth, but a few admirers too for his conviction. "Subbarao is a pragmatic and astute central banker who has taken independent decisions based on his well-researched conviction," says Madan Sabnavis, chief economist at rating company Care. "He has recognised inflation as being the single most important malaise afflicting the economy and pursued the goal of increasing rates, notwithstanding the pressures being exercised from different quarters, displaying a lot of character."

C. Rangarajan, Chairman, Prime Minister's Economic Advisory Council

He is an Indian economist and a distinguished former Member of Parliament and Governor of the Reserve Bank of India. Currently, he is the Chairman of the Prime Minister's Economic Advisory Council. He is also the Chairman of the Madras School of Economics, and the Founding Chairman of the CR Rao Advanced Institute of Mathematics, Statistics and Computer Science. Rangarajan graduated from the prestigious Loyola College of the University of Madras in the commerce stream (where he was a contemporary of the Yale University economics professor T N Srinivasan). He later took Ph.D. in economics from the University of Pennsylvania in 1964. Rangarajan taught at several institutions including the University of Pennsylvania and the IIM-A where he also served as the Director. Commenting on the rate hike, Dr. C. Rangarajan, said, "This is the right decision... in the background of rising inflation...Inflation has been above 9 percent since January this year and taming inflation is the most important concern of the central bank." 

http://www.siliconindia.com/shownews/The_10_Economic_Experts_Who_Advise_our_PM-nid-93260.html

'Aadhaar valid to open bank a/c'

NEW DELHI: Contrary to the Reserve Bank of India's notification, an  Aadhaar card is a valid residence proof for opening a bank account. "Aadhaar is a valid "Know Your Customer" (KYC) document for opening a bank account," Unique Identification Development Authority of India (UIDAI) chairman Nandan Nilekani said. "The Aadhaar letter has two parts - identity and address. If the address that a person shows to the bank is the same as on the (Aadhaar) letter, it is also a proof of residence," he said. The Reserve Bank of India's (RBI) notification issued on Wednesday stated that Aadhaar is not a valid residence proof. However, the central bank reportedly accepted its validity as identity of a person. Nilekani said, "In a few days, we will be starting online authentication of address and identity. If the address matches through online authentication, it will be treated as current address (of the person applied for a bank account or a service)." He clarified, "As of now, the banking system has declared Aadhaar as a valid KYC norm for all bank accounts as per the RBI notification issued on Wednesday." The telecom and petroleum ministry also consider Aadhaar as a valid KYC norm for issue of SIM cards and cooking gas connections. He said about 37 million people across the country have been given unique identity cards and another 1.2 million people will get it daily by October. "New people are getting enrolled across the country at the rate of 6 lakh a day, by October the figure will be one million people per day," he said. Nilekani pointed out that there is little possibility of duplicates arising out of the system because only one ID is issued to a person taking his biometric signature. Asked whether the UIDAI was on a collision course with the Planning Commission, the UIDAI boss asserted that the Authority - set up for issuing national identity cards - was working under the powers delegated by the Prime Minister. "My powers have been delegated by the PM," Nilekani said, adding that UIDAI is an attached office of the Planning Commission. The issue came up after the Plan panel reportedly expressed concerns that the UIDAI is departing from set government procedures and suggested a re-look into its structures.

TOI