Subbarao keen to retain his signature’s weight

The privileges of being the Governor of the Reserve Bank of India are many. One of them is having one’s signature stamped across the millions of currency notes of various denominations churned out from the country’s mints. Governor D Subbarao, however, indicated a governor may not always swell with pride when he stares down at his signature plastered on currency notes. “The value I attach to my sign is not just about the validity of the currency, but to ensure the purchasing power was preserved,” Subbarao told students of the Indian Institute of Management yesterday, on being asked how he felt looking at the wad of currency notes bearing his name.  Inflation has emerged as a difficult problem for Subbarao and he has been forced to revise upwards the forecast for March inflation to seven per cent from the earlier 5.5 per cent. The headline number, at 8.4 per cent, is way above the perceived comfort zone of 4-4.5 per cent. At a felicitation function for the Governor in his ancestral town of Eluru in Andhra Pradesh, a speaker had said Subbarao was very close to the hearts of people. He had reckoned that Subbarao was close to the hearts as people put the currency notes signed by him in the upper pockets of their shirts. Subbarao knows that soaring food prices are now giving heartaches to many.  Perhaps more comfortable with the grilling by students rather than the press corps, Subbarao was full of anecdotes and wise cracks. When asked by reporters what went into monetary policy formulation, the stock answer remains the central bank looked at a plethora of domestic and international economic and banking data to get the inflation growth mix right. Subbarao had a different answer when the question was asked by the students. “There is no substitute for good judgment,” said Subbarao. Central banking works the best with a strong gut feeling, believes the governor. That, perhaps, explains why Subbarao has adopted a gradualist approach to the rise in interest rates — 175 basis points in the repo rate and 225 bps in the reverse repo rate, in seven rounds since March 2010.   He also believed in transparency, Subbarao emphasised. That is why, under Subbarao, RBI has added a new paragraph in monetary policy statements that indicates the expectations of the central bank.  “For a long time, we were nontransparent...we had our own expectations but would not tell that to markets,” Subbarao said. The data on prices, one, however, fears, is putting paid to that gut feel as well as the ‘expectations’ down the line. While he was at the microphone, Subbarao wasn’t sure he would get rapt attention from those assembled in the IIM auditorium that morning.  The RBI governor has to deal with rather dreary and esoteric subjects that have a sedative impact on an average individual. Ironically, Subbarao’s wife Urmila is no different. “Usually when I start talking, my wife goes off to sleep. So please stay awake,” Subbarao said, pointing to Urmila, his wife, who was among the audience.  Acknowledging the central bank’s vast canvas of operations that deal with swanky treasury rooms of multinational banks to humble dwelling of a farmer in forlorn parts of the country, the governor had another candid admission to make.  “Two-and-a-half years as the RBI governor, I am not sure what RBI does,” he said. Subbarao’s term ends this September. One hopes he gets a longer run, especially because his three immediate predecessors had a minimum five-year tenure.

Inauguration of the exhibition ‘Mint Road Milestones’

Reserve Bank of India Governor D Subbarao looking at a photo after the inauguration of the exhibition ‘Mint Road Milestones,’ based on the 75-year journey of the RBI, in Bhopal.     

Hard to ease liquidity amid high inflation, says Subbarao

The Reserve Bank of India faces a challenge in easing liquidity without signalling that it is loosening its anti-inflationary monetary policy stance, Duvvuri Subbarao, governor of the central bank said today.  Liquidity in India’s financial system has been tight over the last few months, largely due to lower-than-expected government spending, forcing banks to borrow on average a net of around `850 billion ($18.72 billion) a day from the central bank at its repo window from November through January. The figure has in February dropped to around `720 billion on the back of some pickup in the government spending but advance tax outflows in March are expected again to tighten cash conditions.  India is also battling stubbornly high inflation, standing at 8.43 per cent in December, and easy cash conditions could aggravate the inflationary pressures.  “The dilemma is how to manage liquidity, ease liquidity without giving the message, indication, impression that we are loosening our anti-inflationary stance,” Subbarao said.  “We do it either by CRR (cash reserve ratio) or by OMO (open market operation) but the question is if we reduce the CRR or do OMO in a situation, in acontext when we are trying to signal an anti-inflationary stance, the fear is the market gets mixed signals,” he said while speaking in central India.  CRR is the percentage of deposits that banks must set aside with the central bank as cash, and some market participants have been expecting a cut in this ratio to help ease the tight cash.  In a bid to help ease the severe liquidity crunch in the market, the central bank in its December monetary policy statement announced a four stage open market operation programme, offering to buy up to `480 billion from the market. The RBI has said it wants to keep liquidity in the banking system in a range between a `500 billion shortfall and a `500 billion surplus, or more generally a deficit or surplus of 1 per cent of banks’ total deposits.  However, the central bank may have to move cautiously on any liquidity easing measures, as inflationary pressures are expected to persist in the current calendar year.  Inflationary pressures from domestic sources as well as global commodity prices may intensify in some cases, RBI Deputy Governor Subir Gokarn said today, making the RBI’s job of balancing fighting inflation and easing liquidity that much more difficult.  

Bank credit offtake up 23.4%: RBI

Credit offtake from public and private sector banks in the country grew by 23.4% for the one-year period ended January 28, indicating an upswing in industrial activity, says the Reserve Bank of India (RBI).  For the one-year ended January 28 credit offtake stood at Rs 38.47 lakh crore as against Rs 31.18 lakh crore during the year ago period.  During the period, deposits went up to Rs 51.28 lakh crore from Rs 44.39 lakh crore as on January, 2010, according to latest data from the RBI.  In its annual monetary policy at the beginning of the fiscal, the RBI had estimated that credit offtake would grow by 20% this fiscal.

RBI Allows State-Run Banks To Amortize Pension Expenditure

India's central bank Wednesday let state-run banks provide extra expenditure on staff pensions and gratuities in installments over the next five years. India's nationalized banks recently re-opened the option of a pension for staff who had not opted for it earlier. The Indian Banks' Association, the representative body of the banking sector, had asked the Reserve Bank of India to let them amortize the additional expenditure. The RBI has let the state-run banks amortize the amount over the next five years, starting from the fiscal ending March 31. The banks will have to provide a minimum of one fifth of the total amount involved every year, it said.

Muthoot to revise offer document after RBI circular

Muthoot Finance, the largest gold loan non-banking finance company (NBFC) in the country, is set to tweak its business model while filing the draft red herring prospectus (DRHP) after factoring in the Reserve Bank of India’s (RBI’s) recent directive on gold loans.Recently, RBI notified that bank credit to NBFCs giving loans to individuals and other entities against gold jewellery would not be treated as exposure to the priority sector. The move is expected to impact the borrowing cost of these companies, which account for more than 32 per cent of the Rs 80,000-crore gold loan market in India, as regular loans are costlier than priority sector loans.  Moreover, as these loans will not enjoy priority sector status, the pace of securitisation or assignment to other banks will also fall, which may hit these NBFCs. Selling receivables was one of the main source of capital for these NBFCs. It also helped banks meet priority sector taragets.                                           

Nabard kicks off infrastructure lending on a commercial basis

The National Bank for Agriculture and Rural Development (Nabard) regulator for regional rural banks and cooperative banks since 1982, has begun lending directly to infrastructure projects at commercial rates as part of a transformation and pitting it against traditional lenders to the sector.  Nabard, which had a balance sheet of more than Rs.1.53 trillion as of December-end, will lend Rs. 42 crore to Karnataka State Warehousing Corporation (KSWC) to set up 1,06,000 tonnes storage capacity at nine different locations in the southern state. The loan is being given at an interest rate of around 10% and a maturity of 12 years, Nabard's Executive Director, Prakash Bakshi told Mint. This forms part of the total Rs. 173 crore loan that KSWC is seeking and which Nabard is considering. “We are considering other infrastructure projects as well,“ Bakshi said. “The idea is to support the development of rural infrastructure besides increasing the revenue of Nabard.“ Nabard is setting about changing its business model by funding infrastructure projects in the power and agricultural sectors on a commercial basis and expanding its role in financing state-government sponsored projects as Mint reported on 28 November. Its balance sheet comprises total funds received and loans disbursed. The entry of Nabard into direct infrastructure lending brings it in competition with commercial banks and specialized infrastructure lending companies, which have so far been dominating the space, analysts said.

No FIR’s on depositing fake currency, businessmen ask RBI

The Chattisgarh Chamber of Commerce and Industries has asked the Reserve Bank of India Governor D Subbarao to change certain rules pertaining to administration of banking regulations. The office bearers of the chamber have asked for an appointment with the RBI Governor in this regard. The president of the chamber Shrichand Sundrani, general secretary Jitendra Baralta, treasurer U N Agrawal and others demanded that the no FIR (First Information Report) should be lodged on submission of fake currency notes in banks as businessmen do not always check every currency note before accepting it. They should be instead destroyed instead of filing FIR. Presently, an FIR is obligatory if bank receives fake currency. The president of the chamber said that another regulation which needs to be looked into is that of automatic closure of any account from which there is no transaction for a period of 6 month. He said that opening of accounts of every group-member of a business venture is compulsory as per the orders of the Income Tax department. These accounts are not in regular use. The office bearers also made several other demands like clearing loan applications in time, standardisation of amount necessary for opening bank account etc.                                                                 

RBI Governor in Bhopal on Feb 9

The Governor of the Reserve Bank of India Dr D Subbarao will be in Bhopal on February 9. He will preside over a meeting of RBI’s central board in the capital. He will also inaugurate an exhibition depicting the 75 year history of the bank.

NE lags in electronic clearing system: RBI

Ruling that the Northeast was yet to pick up the electronic clearing system (ECS), a senior Reserve Bank official today said Clearances through the ECS in the region is only one per cent of the national average. "More awareness in required to refine the payment and settlement systems in the region. Of late, Manipur has started payment of salaries through this system. In Meghalaya some debit clearing (like BSNL bills) is done through ECS," RBI Regional Director Surekha Marandi said. Addressing a workshop on popularizing ECS for payment of salaries and pension, she said the electronic transfer of payments were safe, efficient, time saving time and it helped better fund management. "Clearances through cheques take three days time, while through ECS it is done in one day. The ECS also ensures better customer satisfaction," she said.Meghalaya Chief Minister Mukul Sangma said all state government employees will be brought in the loop."The beneficiaries of government schemes and other weekly payments will be done through this system in near future," Sangma said. Meghalaya additional chief secretary (in charge finance) BK Dev Verma said the ECS reduces the paper work and the exercise of going to banks. "The possibility of fraud is also nil," he said. Meghalaya government is in the process of starting e-payment of pension. "Next, we will start the payment of salaries through ECS. The banks have to gear up to handle the tasks, because gradually all government transactions will be done through electronic payment," Verma said.                                                 

Banking access to all villages with 2,000 people: RBI

The Reserve Bank of India (RBI) has planned to make banking accessible to all villages with population more than 2,000 by March 2012, bank governor D. Subbarao said Tuesday. " RBI has planned that all villages with population more than 2,000 must have access to banking such as through ATMs, business correspondents and rural mobile banking ," Subbarao told students of the Indian Institute of Management-Raipur (IIM-Raipur) while making a presentation on the working of RBI.  "It is a challenge before the RBI to maintain growth and control inflation," he said. He explained in detail about several functions of the RBI - from printing and distributing currency to acting as monetary authority, regulatory and supervisory body for banks. The RBI chief also sought to correct people's 'wrong perception' regarding RBI as a regulatory body for interest rates, saying RBI doesn't regulate interest rates on borrowing and lending except for NRI deposits and savings bank accounts. He also explained how RBI acts as an 'external sector gatekeeper' by managing current account deficit

Kamath worried over inflation impeding growth

ICICI Bank Chairman K V Kamath today sounded alarm bells on rising inflation saying price rise numbers at the current level are not at all comfortable. "Current inflation numbers are not at comfortable levels. If we need to make growth sustainable, we need to control inflation and interest rates," Kamath told reporters on the sidelines of the Nasscom India Leadership Forum 2011 here.  On the impact of the successive interest rate hikes by the Reserve Bank of India (RBI), he said, if interest rates are hiked further, it can play a spoilsport for the present high level of growth.  On whether high interest regime is here to stay, Kamath said, till inflation does not come under control, it will remain high. He further said, it is difficult to foresee an easy money regime now as inflation so far has not been responding to the efforts of the central bank. "For the past one-and-a-half years, inflation has not been responding to the traditional monetary and fiscal instruments," Kamath said.    

Two-year FDs fetch more than 5-yr deposits

Banks are offering their highest returns in the one to two-year category of deposits, an indication that they expect interest rates to come down in the medium term. A host of banks have revised their lending and deposit rates but are reserving the most-attractive returns on the medium-term fixed deposits.  The highest rate offered by the country's largest lender, State Bank of India, is 9% and this is the return on its 555-day and 1,000-day deposits. But those who decide to keep their money for a longer term will less. A five-year deposit with SBI will fetch only 8.25% while the return on 10-year deposits is 8.75%. Conventional economics says that rates rise along with tenure, and the current pricing of deposits appears to be an anomaly. But bankers have an explanation for this.  They say there are two reasons for why medium-term rates are higher. The first is that they believe that inflation would come down which would make lower fixed deposit rates more acceptable in the next year. Secondly, they say that it is impossible to predict future rates and since most of their loans are extended on floating rates, they would rather have the option to reprice deposits after a year.  Meanwhile, more banks have increased their lending rates. in the wake of the 0.25% increase in policy rates by the Reserve Bank of India even as the liquidity position eased marginally in the money markets.                               

NABARD asks bankers to implement government sponsored schemes in Himachal

NABARD has asked regional rural banks (RRB), leading commercial banks, cooperative banks to play a proactive role in implementing government sponsored schemes formulated for weaker sections of society. Speaking a day long workshop here today, AD Ratnoo, CGM NABARD Shimla asked the participating banks to action plan for the coming year, which needed to be submitted to NABARD so that targets set out could be monitored. The branch managers of banks were asked to ensure that they were equipped with the guidelines and instructions of RBI, NABARD and central government sponsored schemes such as Dairy Entrepreneurship Development Scheme, Integrated Development of Small Ruminants, Rabbits Self-Help Groups and Joint Liability Groups.

RBI snubs NRIs, says not eligible for interest sops on home loans

The Reserve Bank today said non-resident Indians would not be eligible for incentives on interest on home loans of up to Rs 10 lakh.  Banks provide one per cent interest subsidy for home loans of up to Rs 10 lakh. "Housing loans extended to NRIs for construction of farm houses, and to staff members of the banks are not eligible for subsidy under the scheme," it said in a notification.   The central bank said the notification follows the recent clarifications issued by the government.  The government, in the Budget of 2009-10, announced a scheme of one per cent interest subvention in respect of individual housing loans up to Rs 10 lakh, provided the cost of unit does not exceed Rs 20 lakh.  The scheme was valid till September 30, 2010, with an initial allocation of Rs 1,000 crore. During the last Budget, the scheme was extended till March 31, 2011, with an additional provision of Rs 700 crore.  Further, RBI directed the banks to use their own funds for upfront credit of subsidy under the scheme till government makes reimbursement and added that loans sanctioned prior to October 1, 2009 would not qualify for reimbursement under it.  "While calculating the interest subsidy, each disbursement may be treated as a separate loan and for each disbursement, subsidy claim may be made for twelve instalments," RBI said.  The apex bank also asked all the lenders to submit their claims on a monthly basis in respect of all housing loans eligible for subsidy under the scheme.

Experts solve forex riddle for students

With a view to provide basic information about foreign exchange (forex) facilities available for students/ researchers going abroad, the Reserve Bank of India (RBI) in association with Indian Institute of Technology (IIT), Patna organised an interactive session programme titled “Forex for you”. Students from IIT, NIT and other engineering colleges attended the session. A panel of experts comprising G. Mahalingam, Regional Director, RBI Patna, S. Maurya, Deputy General Manager, RBI, Shrimohan Yadav, General Manager, RBI, Naveen Chandra, AGM, SBI, and A. Saha, GM, Thomas Cook answered students queries over financial issue.  Students were inquisitive about a number of things such as how to unravel black money, how to control inflation, how monetary value is determined, what will be the future of the economy, implications of artificial depreciation of Chinese yuan, what quantum of forex could be taken away to a foreign country and how much of it could be remitted back, whether an engineering graduate can undergo training in RBI, can banks be asked to reduce the interest rate on education loans etc. “The experts broadly spoke about the various facilities relating to foreign exchange available to students and to the general public for different purposes such as travel, study, employment, business, medical needs etc,”  In response to a question regarding the future of Indian economy, Mahalingam said: “India is managing its affairs pretty well. Fiscal deficit is well managed, the only concern is the inflation which is because of supply side problem and RBI can interfere to control it only when it is a demand driven.” “Please don’t worry about India’s economy. You (students) go abroad for study and comeback as we want you to be in the country,” Mahalingam told students.

S K Kotian, Ex-DGM, RBI passes away

S K Kotian, the director of Bharat Co-operative Bank Limited passed away on Sunday February 6 owing to brief illness.  Kotian basically hails from Kallamundkoor in Moodbidri taluk of Dakshina Kannada district.  He retired as Deputy General Manager with Reserve Bank of India and continued to serve the Board of directors in Bharat Co-operative Bank. He was the active member of Billavar Association at the suburban Borivali.  He is survived by his wife and two daughters

RBI to open sub-offices in NE capitals – Surekha Marandi, Regional Director

Reserve Bank of India will open sub-offices in all the capital states of North-East, starting with Agartala.  RBI Regional Director Surekha Marandi told PTI today the process of setting up the first sub-office in Tripura capital of Agartala is on. "We are waiting for Tripura government''s offer. As soon as the state government allots a building, we will start the process," she said. The RBI official said the sub-office at Agartala should be ready by the end of this year. Sub-offices will be set up in other capitals as well in a phased manner, Marandi said, adding that RBI was trying to increase the outreach of banks in the region.                                            

New cheque clearance system to begin in Chennai by mid-2011

Rejection of cheques with over-writing or other corrections, currently limited to the national capital, will begin in Chennai by the middle of the year, but the pan-Indian implementation of this new cheque clearance system by RBI may take a few years more. The new Cheque Truncation System, under which cheques are cleared through their digital image being passed through the banking system and without their physical presentation, will be implemented in Chennai in its second phase by Newgen Software. The system was introduced in Delhi by the company in December 2010, marking the first phase of the new system, proposed by RBI earlier last year.                          

Andhra Bank submits financial inclusion roadmap to RBI

Andhra Bank, one of the leading public sector banks in the country has submitted a roadmap to the Reserve Bank of India (RBI) to provide banking services to 1144 unbanked villages in the country with a population of over 2000 by March 2012. The Hyderabad-based bank has also fixed an interim target to cover around 500 villages by the end of the current financial year under the Financial Inclusion Plan . The RBI has asked the public sector banks to extend their banking services to the unbanked villages having a population of over 2000 by March 2012.  Andhra Bank would offer banking services trough the Business Correspondents (BCs) model by leveraging technology. The bank has already covered 195 villages under FIP, sources said.  In order to strengthen the FIP, the bank has opened 8.60 lakh “No Frill Accounts” under branch banking. With its pan-India presence, the bank has 2615 delivery channels consisting of 1587 branches, 36 extension counters, 38 satellite offices and 954 ATMs.  Out of the total target of 1144 villages to be covered under the FIP, 101 villages are in the bank’s Berhampur zone, that covers seven districts in the south Orissa and Srikakulam district in Andhra Pradesh. The districts in Orissa to be covered under FIP are Ganjam, Gajapati, Nabaranagapur, Kandhamal, Kalahandi, Koraput and Rayagada. Before the end of the current financial year, we will cover at least 30 villages under the FIP, said Regidi Appadu, Deputy General Manager (DGM) of the bank’s Berhampur zone. All the 30 villages are located in Srikakulam district in Andhra Pradesh. Under the FIP, the bank has already undertaken the Andhra Bank Gramina Kranti Patakam, a Smart Card based project for payment of the wages for the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) and the social service schemes like the old-age pensions at the panchayat  level. “Out of 7.45 lakh beneficiaries in Srikakuam district in Andhra Pradesh, the bank has already issued the smart cards to 3.40 lakh people”, Appadu said. The same scheme would be launched in Orissa after signing memorandum of understanding (MoU) with the state government. “The scheme is likely to the implemented in Orissa after March this year”, he added.