Time to act - RBI must not lose yet another year to wait-and-watch

After clearly stating that the interest rate cycle had peaked, the Reserve Bank of India (RBI) has been tight-lipped about timing a trend reversal. The official stand has been one of wait-and-watch, particularly on the inflation front. There are good enough reasons for RBI to maintain that stance because inflation still remains a concern; whatever decline we are witnessing in food prices is on account of the base effect. Noises are still being raised that overall inflation numbers are going remain in the problem zone, especially, given the fact that the rupee has declined in the past couple of weeks. So, it is argued that RBI should be in no hurry to slash rates. This, we believe, is a fallacious argument. Growth numbers have been falling for some time now, and the prime minister’s latest forecast that GDP growth will come down to 7 per cent from 8.5 per cent a year ago is cause for serious concern. Worse, estimates by some research houses indicate a free fall to even below the 6 per cent mark; in the past, their predictions have often been more accurate than the government’s projections. The results season kicking off this week does not indicate healthy tidings. In addition to infrastructure firms, which have been lagging for a long time now, companies focused on domestic consumption are likely to witness contraction this time around. We are of the opinion that RBI should take urgent note of the fact that growth is slowing at a much faster clip than most policymakers had anticipated. If corrective measures are not initiated now, then things are going to turn worse from here on, making economic revival a difficult task to manage. Rather than follow textbook remedies that argue against administering interest rate cuts till inflation is tamed over a consistently long and stable period of time, it would make sense for the central bank to adopt out-of-the-box prescriptions at its forthcoming review without waiting for number signals on the health of the economy. Though, at first instance, that may seem a bitter pill to swallow on part of RBI, considering that it continued to raise rates till as late as October, if that is what is required to save the economy, so be it. In our issue dated Monday, FC published an exhaustive report on how retailers were being forced into discount sales in peak season. This is indication that, on the ground, the economic slowdown has started taking roots and it is time for policymakers to act. Peak festival sales have traditionally been high in north India, and much of the rest of the country, in winter, adding significantly to corporate bottom lines. Weak sales this season by both large-format corporate retailers and medium-sized companies will soon reflect in government numbers, dragging down an entire chain of small suppliers and vendors. This makes it imperative on part of policymakers to create a robust economic climate that can revive demand. Already, the economy has lost a valuable year to tight money policy measures adopted by the central bank in deciding between growth and high prices. Also, the government seems trapped in a state of policy paralysis, with economic decision making grinding to a halt. If timely measures are not initiated by the central bank to kick-start the economy and get production and employment opportunities moving, yet another year may be lost in the wait-and-watch game in a year that is globally predicted to be worse than the year just gone by. The time to act is now.

FC

Legislating immorality

.... The country still enjoys a savings rate of 30% and the central bank has been increasing interest rates. Last I heard, no member of its monetary policy committee has been proposing any quantitative easing programme.......

Read..........

'Need to remove structural bottlenecks for sustained growth –

Bhalchandra Mungekar, Indian Economic Association

.... I had sought in the Rajya Sabha RBI intervention in the forex market by selling some dollars. The RBI did it for some time that somewhat contained depreciation. Since we don’t have real forex surplus, the RBI cannot do that infinitely. But I appreciate the balanced and cautious approach that the RBI has all along adopted.....

Read.......... 

India needs a currency stability fund

.... Ideally RBI should work within a band and intervene directly to stabilize the rupee. The central bank’s judgment can be used when looking at, say, the real effective rate that also adjusts the exchange rate with relative inflation......

Read...........

A perfect storm

.... I am one of the few commentators who would endorse the RBI’s logic in remaining on the sidelines in the recent plunge of the rupee. Irrespective of the proximate cause of the depreciation, it has been effective in signalling that, in a turbulent global and domestic environment, the RBI is willing to allow the nominal exchange rate to take the burden of adjustment.A harder question is whether it can now afford to ease up on interest rates given the slowing economy. Other things being equal, a depreciating rupee calls for monetary tightening rather than loosening, as does the need to reaffirm the role of the RBI’s inflation target as a credible nominal anchor for the system. The contribution we can expect of monetary policy this time round will be less than in the past....

Read...........

Bankers may seek policy rate cut at RBI meet

MUMBAI: Bank chiefs are likely to suggest that the Reserve Bank of India (RBI) should cut policy rates in view of the slowdown in the demand for loan, at a meeting to be chaired by Deputy Governor Subir Gokarn on Tuesday. The customary pre-policy meeting will help the RBI gauge bankers' assessment of the economic growth and liquidity conditions ahead of its next monetary policy review on January 24. The meeting assumes significance in the context of the current debate on whether the RBI should give importance to growth over inflation. The economy grew by 6.9% in the September quarter, lower than the 8.5% a year ago. At the same time, headline inflation is around 9.11%, higher than the 7% the central bank had targeted for March 2012. "A 25 bps rate cut could make a lot of difference to improve the sentiments in the economy, which has been low for quiet some time now," S Raman, the chairman and managing director (CMD) of Canara Bank, told ET. The CMD of Punjab National Bank, KR Kamath, also aired similar views. "A rate cut is one of the measures that will help revive sentiments in the economy. It may be a signal of other things to follow," he said. The RBI raised interest rates since March 2010 to tame inflation and paused for the first time in its last policy statement in December. Every quarter, RBI holds an interactive session with the chiefs of select banks to understand their views on various issues like credit growth, liquidity conditions and interest rates. Bankers are expected to urge the RBI to cut policy rate as they witness a slowdown in the demand for loan. Credit has grown 17% on a year-on-year basis as on December 16, as against 23% a year ago. Bankers have attributed the slowdown in demand to rising interest rates and input costs, promoting corporates to delay their expansion plans. Aggregate deposits has risen 18% on a y-o-y basis .

ET

Possible interest rate reduction to spurt economy: Kochhar

"Interest rates are likely to be reduced in the near future which will support the growth prospects during this year,"

Read.............

Limited space in the room

....The central bank will be loath to see the gains from a series of interest rate hikes being squandered by undue haste in reversing them. Policy headroom in 2012 is so much smaller than it was in 2009. The climb will be longer this time around.

Read............

Clean up RBI’s mess

....The RBI believes the only way to combat inflation is through rate hikes. Milton Friedman must be happy with the conservative monetarists who follow textbook undergraduate macroeconomic theory. The simple Friedman logic is: the only reason for inflation is over-supply of money. According to Friedman’s k-per cent rule, if the money supply is squeezed, prices will come down. It is fallacious on many counts, just two of which are: nobody has succeeded in fighting food inflation or fuel inflation through monetary policy. Demand-side controls will not succeed in a country like India. It has to be dealt with on the supply side, which means good governance. Inflation, driven by cost-push factors and supply-side constraints, cannot be fought through rate hikes......

Read...........

Banks told to rejig officers holding key posts

Concerned with instances of alleged irregularities in public sector banks, the Central Vigilance Commission has directed them to ensure timely rotation of officials working in sensitive posts to check corruption and avoid " vested interest"..............

Read...........

‘Farmers can get interest subsidy on loans for another six mths’

Mumbai: The Reserve Bank on Monday said farmers will get loan at concessional rates for an additional period of up to six months post-harvest, a step aimed at encouraging storage of farm produce in warehouses. "In order to discourage distress by farmers and to encourage them to store their produce in warehousing against warehouse receipts, the benefits of interest subvention will be available to small and marginal farmers having Kisan Credit Card for a further period of up to six months post harvest ...," it said. At present, concessional crop loan at 7 percent with interest rate subsidy is available to farmers as pre-harvest loan. The RBI also asked banks to "immediately" submit their estimates of short-term production credit to farmers for up to Rs 3 lakh during the year 2011-12, to enable it to provide government with an estimate of the likely amount of subsidy. The government has raised the subsidy for timely repayment of crop loans to 3 percent for 2011-12, thus making the effective rate of interest for such farmers to 4 percent per annum.

Zee News

Two-week breather for Noida banks

A month after the Supreme Court cracked the whip on banks operating illegally from residential colonies in Noida, the rule was relaxed temporarily with the Court suspending sealing of banks for next two weeks. On an application moved by the banks’ association, many of whom are operating within Noida’s residential colonies, the bench of Justices Swatanter Kumar and Rajana Desai stayed operation of its December 5 judgment for two weeks. The bench summoned Chief Executive Officer of Noida to remain personally present on the next date of hearing to detail the steps taken to provide alternate locations to the displaced banks. The order had affected the operations of 22 banks and 21 ATMs involving nationalized banks that affected lakhs of customers in Noida. Appearing for the banks, senior advocate Mukul Rohatgi submitted that the banks were yet to get alternate land. In this connection, he added, they approached the Noida CEO and even advertised in newspapers for rented accommodation. Further, Rohatgi said that setting up banks required strict adherence to guidelines of Reserve Bank of India and Central Vigilance Commission.

The Pioneer

Banks to cough up penalty on delayed transactions

Next time your online transaction or money transfers get delayed, you will be entitled to get penalty and interest on the delay, thanks to a new Reserve Bank of India (RBI) circular. The circular issued last week said that in cases of delayed credits, banks resort to value-dating of the credit in the customer’s account to avoid payment of penalty, which is not in accordance with the instruction issued by RBI in this regard. This is being viewed seriously and is in violation of our instructions, the circular said, adding penal interest of 10.5 per cent would have to be paid for such delays. “RBI will invoke penal action against banks that do not implement the new National Electronic Fund Transfer (NEFT) guidelines in the next 15 days,” said RBI executive director, G Padmanabhan. As per the guidelines, banks are supposed to pay penal interest at the current RBI repo rate (which is at present at 8.5 per cent) plus 2 per cent for the period of delay. So for example, if you are transferring Rs 50,000, and it gets delayed by two days, you will be entitled to penal interest of 10.5 per cent of Rs 50,000 for two days. Padmanabhan said that it was found that banks were not following the NEFT guidelines properly. “Banks may forthwith put up a stop to this practice and strictly adhere to the extant instructions of paying penal interest at the stipulated rate to the customers suo-moto, without waiting for a claim from the customers,” said RBI in a circular. “Many banks were not providing confirmation receipts of fund transfer to the sender. Only the receivers received confirmations against both concerned parties receiving messages and that was a problem,” he said. Padmanabhan was in Chennai for launch of Tamilnad Mercantile Bank’s mobile banking services. Stating mobile banking as an example, he said, banks have not made an attempt to familiarise mobile banking services to customers and have not done all the required rules to meet customer protection. As on October 2011, of the 52 banks, which got a nod from the RBI to provide mobile banking services, only 44 banks were providing the service, he observed. There were 22.45 lakh transactions worth Rs 161 crore, which is 9 per cent growth on a month-on-month basis. “The numbers are impressive, but not heartening,” said Padmanabhan.

FC

Banking frauds

Apropos of ‘Pvt. banks see more fraud cases than public ones’ (January 9), the information obtained from RBI under RTI Act on banking frauds is astonishing. It is unbelievable that private banks, known for their perfection and prompt services, are more prone to such frauds. Thus, it will be convenient to conclude that security level at public sector banks is better. But is it really so? It is well known that with internet and mobile banking services, cases of cyber crimes are on rise. The customer’s ignorance about functioning of e-banking facilities lands him in the clutches of frauds, resulting in financial losses. Less number of frauds in public sector banks does not necessarily mean that customers of public sector banks are more careful/computer literate. A careful study of banks’ records and scrutiny of fraud cases will throw light in this matter.

— Kishorkumar J Ved (DNA)

Nominate to avert trouble

Have you filled the nomination form for your bank accounts and safe deposit locker? If so, have you got an acknowledgement from the bank, confirming registration of the nomination? If your answer to either or both of these questions is in the negative, I would suggest that you complete these essential formalities without any delay and also take your bank to task for not reminding you of it. The banking regulator has been asking banks to comply with these legal formalities, but banks often ignore this important advisory. In some cases, they might get the new customers to fill up the form, but not bother to ensure that old customers also follow suit. In fact, in its latest master circular on customer service released in July this year, the Reserve Bank refers to an observation made by Allahabad High Court, wherein it said, “It will be most appropriate that the Reserve Bank of India (RBI) issues guidelines to the effect that no savings account or fixed deposit in single name be accepted unless name of the nominee is given by the depositors. It will go a long way to serve the purpose of the innocent widows and children, who are dragged on long drawn proceedings in the court for claiming the amount, which lawfully belongs to them.” The regulator also points out that some banks do not have a system of acknowledging the receipt of the duly completed nomination form. Saying that this did not meet with the legal requirements, the RBI says that “banks should strictly comply with the provisions of the Banking Regulation Act, 1949, and the Banking Companies (Nomination) Rules, 1985, and devise a system of acknowledging the receipt of the duly completed form of nomination, cancellation and even changes in the nomination. Such acknowledgement should be given to customers irrespective of whether the same is demanded by them.” The regulator also emphasises that banks are required to register in their books, the nominations and alterations (if any) made by the customers.  The RBI also advises banks to indicate on the passbook, whether the account holder has availed of the nomination facility and whether it has been duly registered by stamping the inscription “nomination registered”. The regulator has also asked banks to educate customers on the importance of nomination and give the subject wide publicity — even put reminders in cheque books. So if your bank is not following this mandate, get them to do it. Complain, if necessary, to the RBI.

The Telegraph

Plea to write IIT entrance in Tamil

A woman has approached the Madras high court seeking direction to the Union government to include regional languages listed under the VIII Schedule of the Constitution, preferably Tamil in Tamil Nadu, as a mode of writing answers in the IIT joint entrance examinations (JEE) scheduled on April 8. A division bench of Chief Justice M.Y. Eqbal and Justice T.S. Sivagnanam ordered notice to the chairman, IIT council and the Union government on a public interest litigation by R. Ovia of Chennai. The petitioner said that in 2010-11 about three lakh students in Tamil Nadu took the higher secondary examination in Tamil and several students were from a rural background. The information broucher for the JEE, Ovia pointed out, said that candidates can opt to take the test in English or Hindi but would have to exercise the choice while applying.  The Union Public Service Commission and the Railway Recruitment Board conduct examinations for recruitment in various categories in regional languages, she said. The RBI Young Scholars Award Scheme is also being conducted in 12 regional languages by the RBI and National Council of Education, Research and Training, she said. Hence, the Centre not including regional languages as a mode of examination is violative of Article 14 of the Constitution, she said.

DC

'Auditors should work to cope with new risks'

Accounting professionals and auditors of banks have to gear up to cope with newer risks and shocks in the banking and financial institutions segment, said K C Chakrabarty, Deputy Governor, Reserve Bank of India (RBI). In a keynote address, to a two-day international conference on the accountancy profession, he said they and auditors should work with the regulator to bring resilience to risk and shock in the banking sector. The bank management and auditors have to ask pointed and relevant questions on the adequacy of capital and advances to make banks pro-actively block risks and shocks. "The recent global financial crisis underscored the fact that risks and shocks are unavoidable. Taking risk is an inevitable part of the business of banks," he said. "If we have to improve the role of auditing profession in managing the resilience to risk and shocks, our entire audit system has to undergo change," he added. Accountants need to come out from the narrow consideration of accounting standards and come at specific answers. Similarly, auditors need a system-wise understanding of markets, products and their connectedness, especially in times of stress. Auditors have to move beyond narrow transaction audits and considered to look at the larger picture. The diversification of activities of banks from the traditional function of lending and borrowing to various other activities, including corporate advisory consulting and the technology-driven nature of the sector in modern times has changed the risk and shock profile of banks. It is also critical that periodical stress-test results are incorporated in the business and capital assessment and planning exercise of banks. The overall acceptable levels of expected (risk) and unexpected (shock) loss willing to be incurred by banks should be a management decision, based on rigorous and analytical assessment of available information, he said.

BS

VITALINFO - Never to miss.........

 

Banks viewing financial inclusion as an opportunity and not just obligation

The banking sector is poised to see significant changes in the immediate future. Reserve Bank of India ( RBI) & the government are taking several steps to strengthen and liberalise the Indian financial system. These steps are expected to transform and boost the banking sector further.......

Read..................

Coins' hoarders claim to be RBI dealers

AHMEDABAD: Hoarders and transporters of four tones of coins have got out on bail. The duo was arrested in connection with the huge consignment of coins headed for Indore in a truck. Commercial tax department officials had intercepted the truck and reported the matter to Reserve Bank of India (RBI). A city session court on Saturday released city-based trader Ravi Gupta and his accomplice from Chhatisgarh, Jeteendra Rajai, on bail. Surprisingly, the bail application submitted by the duo's lawyer before the court says: "We are RBI's official dealers for trading in old and mutilated currency notes and coins. RBI has written letters to different banks about us being official dealers. Exchange of small coins is a legal business so we take coins from RBI and send it to places or businessmen where it is needed." "After learning about the letter, in which the duo claimed that they are RBI dealers, when we spoke to RBI officials, they denied having any such dealers," said Ajay Tomar, joint commissioner of police, Sector-1. RBI, in its police complaint against Gupta and Rajai, had claimed that the duo was part of a conspiracy to misuse currency coins. RBI and other investigating agencies have cracked down on gangs that melt currency coins and use the metal as raw material for a variety of products. Gupta was sending the coin consignment to Indore using a fake dispatch order claiming that the consignment consisted of nuts and bolts. Rajai was the consignee of the coins, but his name was not mentioned in the order.Referring to the bank's letter submitted along with the bail application, an RBI official said: "The letter, dated June 29, 2010, issued by RBI just requests the manager of Punjab National Bank's Mascati Market branch in Kalupur to extend exchange facility of old and mutilated notes and coins to Gupta and six others. However, Gupta was blacklisted in February, 2011, when we suspected him to be misusing the facility for profit-mongering." The RBI official added, "As per the Indian Coinage Act 1906, coins of the value of less than one rupee are termed as 'small coin.' However, the currency coins found in 72 gunny bags are of Rs one, two and five denominations."

Coin cruise

Dec 27: A truck with four tonnes of currency coins intercepted at Dahod Checkposts by Gujarat commercial tax department official.

Dec 29: City-based trader Ravi Gupta and Chhattisgarh-resident Jeetendra Rajai goes to the tax department claiming themselves as dealers of RBI and asks them to release the seized consignment. However, the plot fails when tax sleuths call RBI officials to verify their claims.

Dec 30: RBI files a police complaint against Gupta and Rajai at Naranpura police station. RBI accuses the duo of fraudulently hoarding currency coins and misusing them.

Jan 2: A local court turns down bail application of the duo. During hearing, investigating official tells the court that the custody of the seized coins is yet to be secured and that they are lying at Dahod checkposts.

Jan 6: City session court hears bail application of the duo. Investigating officer tells the court that they were yet to take the coins in their custody. The duo's lawyer submits a letter claiming that Gupta is a registered RBI dealer and so he can trade in coins. The court grants them bail in an order on January 7.

Jan 8: A team of Naranpura police station officials leaves for Dahod to bring the coins and truck to Ahmedabad. Officials open one of the 72 gunny bags to find Rs 2 coins packed in small packets inside.

TOI