The Reserve Bank of India (RBI) sent a strong signal on Tuesday that it will refrain from cutting interest rates until it is confident that consumer inflation can be reduced to a target of 6 per cent by January 2016. The RBI policy review statement reinforced Governor Raghuram Rajan's commitment to tame inflation in a country that has long struggled with prices rising at double digit levels annually, causing most distress for the country's poor. The RBI kept its key policy repo rate unchanged at 8.0 per cent, as widely expected, and also left its main liquidity levers - the statutory liquidity ratio (SLR) and the cash reserve ratio (CRR) - untouched. Warning of upside risks to its 2016 inflation target, the RBI said policy moves would hinge on inflation trends. "This continues to warrant policy preparedness to contain pressures if the risks materialise," the RBI statement said. "Therefore, the future policy stance will be influenced by the Reserve Bank's projections of inflation relative to the medium term objective (6 per cent by January 2016), while being contingent on incoming data." Consumer price inflation slowed to 7.8 per cent in August, making the RBI far more confident that the near-term target of 8 percent inflation in January would be met. In a separate report on inflation, the RBI spelled out its concerns for the future, noting elevated inflation expectations among households and an enduring risk of higher food prices because structural issues were taking time to solve. The central bank projected inflation to ease to 6 per cent by November but soon rise to around 8 per cent by January through March 2015 as a favourable base effect is likely to reverse. A Reuters poll last week showed most analysts expect the RBI will not cut interest rates until the April-June quarter. "The key takeaway is that the central bank is now focused on achieving the 6 per cent inflation target rather than the 8 per cent target," said Soumyajit Niyogi, an analyst for SBI DFHI Primary Dealership. Economy To Grow FasterInvestors in India's bonds are happy with the priority Rajan gave to breaking the "back of inflation" in a speech last week. And, on Tuesday, the benchmark 10-year paper was down 1 basis point to 8.48 per cent from its previous close. Filled with hope by the election of Prime Minister Narendra Modi last May, investors in India's booming stock market have been undeterred by the high interest rates. The new Modi government has backed Rajan, though the RBI's strategy is far less popular with businesses, which want relief from high interest rates, and banks which want to lend more. The RBI on Tuesday reiterated its economic growth projection at 5.5 per cent for 2014/15 and said it expects the economy to grow 6.3 per cent in 2015/16. Modi's reformist government will want more priority to be given to boosting economic growth, but it will have to play its part by remedying structural issues that create supply bottlenecks, and by reducing its fiscal deficit. In the absence of rate cuts, all the RBI has offered so far this year to help growth has been modest measures to make more credit available. Ultimately, India needs far stronger investment if it is to decisively recover from the sub-five percent growth suffered in the past two years, and grow fast enough to provide jobs for the millions of young people entering the labour market. Currency Exchange RateThe RBI is not focussed on any particular level of exchange rate, but wants to reduce undue volatility, Rajan said. He added such a policy would mean that the central bank would typically intervene on both sides of the exchange rate. The rupee has risen in recent months and in the process has maintained its parity with the dollar seen at the beginning of the year, Rajan told reporters in Mumbai. The rupee has gained 1.89 per cent against the dollar in the month to date and 2.93 per cent in the past six months, as per Thomson Reuters data. Jan Dhan YojnaSoftening his stance on the Pradhan Mantri Jan Dhan Yojana, Rajan said he is not worried about the quality of KYC (Know Your Customer) for opening new accounts and welcomed the financial inclusion scheme. "We welcome the Jan Dhan Yojana, it is part of RBI's plan to get universal access," he told reporters. "I am not as worried about the quality of KYC for small accounts. In fact, we have essentially allowed for KYC that can be upgraded over time and in fact we have been more liberal on KYC," Rajan added. The RBI governor had earlier cautioned the banks on the risks involved in just hunting for numbers, asking them not to compromise on core objectives of the programme. "When we roll out the scheme, we have to make sure it does not go off the track. The target is universality, not just speed and numbers," Rajan had said while addressing bankers a fortnight ago. However, Rajan said on Tuesday he wanted a proper inclusion of unbanked households into the banking system. "What I am more concerned about is that we actually achieve proper inclusion by bringing in households that were not reached in past... We are working with the government to try and make this dream a possibility," Rajan said. Jan Dhan Yojana was launched by Modi in August to bring 7.5 crore more families into the banking network by January 26, 2015. So far, over 5.1 crore accounts have been opened and Rs 3,600 crore deposited in banks. (Agencies)
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With retail inflation at a high level, the Reserve Bank 0f India (RBI) is unlikely to cut interest rates in its upcoming monetary policy review this week. The RBI will unveil its fourth bi-monthly policy on September 30. Although consumer price index (CPI), which the central bank is monitoring closely, has shown a declining trend in the past few months, the levels are still out of its comfort zone. RBI has set a glide path for CPI inflation at 8 per cent by January 15 and 6 per cent by January 2016. Retail inflation or CPI eased to 7.8 per cent in August from 8.59 per cent in April. The wholesale price index (WPI) inflation has also eased, although more sharply, to 3.74 per cent in August from 5.55 per cent at the start of the current fiscal. Banking experts however still believe that it may not be time for rate cut yet. State Bank of India chairperson Arundhati Bhattacharya said: "RBI is likely keep interest rate unchanged." Echoing the similar view, Bank of Baroda Executive Director Rajan Dhawan said: "I think RBI would not change interest rate in the policy review because of inflation overhang." Credit rating agency Care Rating said RBI has less room to cut policy rates on September 30 as there remains an upward threats to inflation going ahead. "Given the economic parameters of improving growth of 5.7 per cent (Q1 FY15) GDP and elevated retail inflation on the back of potential threats to inflation going ahead, we do not foresee any room for a rate cut in the upcoming policy announcement," Care said in a report. In a hint to the market that the cut in interest rates is still far away, RBI Governor Raghuram Rajan had recently said there was a need to 'break the back' of inflation which remains high. "The real problem is inflation that is persistent. We have been emphasising again and again in order to 'break the back' of inflation, we got to break this persistence," Rajan had said at an event. Rajan had said that RBI will be in a much more comfortable position once inflation is contained. "I have no desire to keep interest rates high for even a second longer. I want to bring down interest rates when feasible. It will be feasible when we would have won the fight against inflation," he had said at a banking event earlier this month. Canara Bank chairman and managing director R K Dubey said RBI will lower the rates only if inflation comes down consistently for a few months. "So, I expect some change in rates only by January," Dubey said. Market participants, however, will closely watch the tone of the monetary policy. In the last monetary policy review in August, RBI, for the third consecutive time, left the repo rate unchanged at 8 per cent. It, however, lowered the Statutory Liquidity Ratio, the portion of deposits that banks are required to keep in government bonds, by 0.5 per cent to 22 per cent from 22.5 per cent to unlock about Rs 40,000 crore into the system. According to Care Rating, RBI may not cut SLR on September 30 but even if it slashes SLR it won't come as a surprise. "It (SLR cut) could probably be a part of the long term goal of lowering the SLR rather than a short term measure," Care Rating said. Indian Banks Association chief executive M V Tanksale said there was no need for a SLR cut now as credit pick up is slow and also there was no urgent need of liquidity. (PTI)
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The Supreme Court ruled on Wednesday (24 September) that companies will have until end-March next year to return most of the coal blocks (214) allocated illegally to them by the government since 1993, which could worsen an already severe shortage of the fuel in the short-term and raise imports.The court ruled last month that the country's decades-old method of granting coal mining concessions was illegal and arbitrary, putting investments worth billions of dollars at risk. The Bombay Stock Exchange benchmark Sensex plunged 215 pts at midsession after the Supreme Court ruling.The court declared last month that India's decades-old method of granting coal mining concessions was illegal and arbitrary. The latest ruling will allow the government to come up with a plan to auction the blocks. The verdict sent shares of Jindal Steel and Power Ltd, Hindalco Industries Ltd and Tata Power Co Ltd sharply lower. The court, led by Chief Justice Rajendra Mal Lodha, let off two coal blocks operated by Reliance Power and one each by state firms NTPC Ltd and Steel Authority of India Ltd. The government's award of more than 200 coal blocks to steel, cement and power companies was at the centre of the "Coalgate" scandal. An auditor report in 2012 said the underpriced sales had cost the exchequer as much as $33 billion. The government had earlier proposed auctioning the blocks, a process that is likely to take months. Legal wrangling and investigations into the concession process meant there was a tepid response to India's first coal block auction in February. The government withdrew the auction after only two firms bid for one of the three blocks on offer. The court said that 42 coal blocks under production or about to commence production will remain with their present management for the next six months till the central government decides on their reallocation.The ruling sent shares of Jindal Steel and Power Ltd, Hindalco Industries Ltd and Tata Power Co Ltd sharply lower. The firms have already spent heavily on steel and power plants based around the coal blocks.IIDBI Bank Shares Down 5.3%, Coal India Up 5%State-run lender IDBI Bank Ltd has close to Rs 2000 crore ($328 million) loan exposure to companies affected by a Supreme Court order scrapping coal blocks but not all of it will be problematic, the lender's head said on Wednesday."We are assessing," M.S. Raghavan, chairman and managing director of IDBI Bank, told Reuters after the Supreme Court's verdict.IDBI Bank shares were down 5.3 per cent compared to a flat performance in Nifty. The Bank Nifty fell about 1 per cent.Coal India shares, however, jumped 5 per cent once the Supreme Court verdict was up. Sensex Down 215 PtsThe benchmark BSE Sensex plunged over 215 points on Wednesday in the late afternoon trade as stocks led by metal sectors faced selling pressure after the Supreme Court cancelled 214 coal block allocations.The Sensex after opening in positive zone, succumbed to selling pressure and dropped by 215.69 points, or 0.80 per cent, to 26,560.00 at 1415 hours with capital goods, realty, consumer durables, metal and banking sector stocks retreating to selling pressure.The NSE 50-share Nifty dipped below the 8,000 mark by falling 67.05 points, or 0.84 per cent, to 7,950.05.Major losers were Jindal Steel Power 9.77 per cent to Rs 190.15, Hindalco by 0.38 per cent to Rs 156.45Other losers were ICICI Bank, HDFC Ltd, BHEL, Axis Bank, Bajaj Auto, Hero Motoco, Tata Motors, L&T, Tata Steel and TCS.Besides, persistent selling by foreign funds on the bourses also dampened sentiments, they said.(Agencies)
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The Reserve Bank of India wants to make sure that the country's banking system is cleaned up so that there is no room for fraud during stressed times, Governor Raghuram Rajan told a banking conference on Monday. The government's step to curtail fiscal deficit is helping the central bank's monetary policy, Rajan said. But one of the biggest concerns was that enough credit was not flowing to the agricultural sector, he said. Rajan said there was a need to change the management appointment process in public sector banks to make it more transparent. The central bank is in talks with the government to improve governance in public sector banks, Rajan told the banking conference. He said problems that have emerged in recent bank scandals were due to outsourced project evaluation.Investment GrowthRajan said India's macroeconomic indicators are improving and inflation has been coming down consistent with the central bank's forecast, but Asia's third-largest economy needs investment growth to pick up. Rajan, however, said Friday's industrial output and inflation data suggested that recovery was "uneven." Output from mines, utilities and factories grew by a much slower-than-expected 0.5 per cent year-on-year, government data showed on Friday, down from June's revised 3.9 per cent rise. InflationThe RBI governor said inflation was still high and there was no point in cutting interest rates to see inflation pick up again. The RBI wants to bring down interest rates when it is "feasible", Rajan said. Retail inflation, which the central bank tracks for setting lending rates, edged down marginally to 7.8 per cent in August from 7.96 per cent a month earlier, helped by slower annual rises in prices of fuel and clothes. (Reuters)
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The rupee recovered by 15 paise to 60.24 against the dollar in early trade on Monday (08 September) at the Interbank Foreign Exchange market on increased selling of the American currency by exporters and banks amid sustained foreign fund inflows.Forex dealers said besides increased selling of the American currency by exporters and banks, a higher opening in the domestic equity market and the dollar's weakness against other currencies overseas supported the rupee.The rupee had closed 3 paise lower at 60.39 against the dollar in the previous session on Friday.Meanwhile, the benchmark BSE Sensex rose by 204.25 points, or 0.75 per cent, to hit new all-time high of 27,230.95 in early trade on Monday.(PTI)
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Snapping its four-day losing streak, the rupee recovered by seven paise to 60.61 against the US dollar in early trade at the Interbank Foreign Exchange market today amid sustained overseas capital inflows.Fresh selling of the American currency by exporters amid sustained inflows of foreign funds supported the rupee, forex dealers said.Besides, a higher opening in the domestic equity market also helped the rupee but the dollar's gain against other currencies overseas, capped the rise, they added.The rupee had lost 15 paise to hit two-week closing low of 60.68 against the dollar in yesterday's trade on consistent demand for the US currency from importers and some banks on strong global cues.Meanwhile, the benchmark BSE Sensex rose 129.51 points, or 0.47 per cent, to hit new record-high of 27,148.90 in opening trade.(PTI)
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India's balance of payments was in surplus for a third straight quarter in April-June, even though the current account deficit widened sharply from the previous quarter due to rising imports, data showed on Monday. The balance of payments was boosted by strong dollar inflows. India has seen a surge in short-term dollar inflows, widely known as portfolio flows, this year as investor confidence improved after the current account gap narrowed and on expectations of a stable government led by industry-friendly Narendra Modi. He was elected prime minister in May. The balance of payments registered a surplus of $11.2 billion during April-June, up from $7.1 billion in the January-March quarter, data from the Reserve Bank of India (RBI) showed. A year ago the balance of payments was $300 million in deficit. The current account deficit for April-June stood at $7.8 billion, sharply higher than $1.3 billion in January-March but narrowing from $21.8 billion a year ago, according to the RBI data. "It is hard to say how much the non-oil, non-gold imports will go up once recovery picks up," said Indranil Pan, chief economist at Kotak Mahindra Bank. "Also global risk aversions could put pressure on these portfolio inflows which are fickle in nature. So overall one has to have a relative caution on the current account deficit." Foreign portfolio inflows into India have totalled $30 billion so far this year, compared with just $12 billion for the whole of 2013 when the Indian currency had plunged to a record low on concerns about the wide current account deficit and sluggish economic growth. In the April-June quarter of 2014, portfolio inflows stood at $12.4 billion compared with an outflow of $200 million a year ago. India's current account deficit touched a record high of around $88 billion in 2012/13, driven by a massive surge in gold imports. Gold imports rose to $7 billion in the April-June period of 2014, from $5.3 billion in the previous quarter, but were less than half imports totalling $16.5 billion in the June quarter a year ago. The trade deficit in the April-June period widened to $34.6 billion, from $30.7 billion a quarter ago but was still sharply lower than $50.5 billion in the same quarter of last year. (Reuters)
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Prime Minister Narendra Modi will launch the Pradhan Mantri Jan Dhan Yojana (PMJDY), the national financial inclusion mission, in Delhi on August 28. He will also dedicate the mobile banking facility on the basic mobile phone to the nation on the occasion.PMJDY envisages comprehensive financial inclusion in two phases. The first phase (15 August,2014-14 August,2015) will cover universal access to banking facilities, provide basic banking accounts (with overdraft facility of Rs 5000 after six months and RuPay Debit card with inbuilt accident insurance cover of Rs 1 lakh and RuPay Kisan Card), and a massive financial literacy drive.The second phase (15 August 2015-15 August, 2018) will see the creation of a Credit Guarantee Fund for coverage of defaults in overdraft A/Cs and introduction of micro insurance and unorganized sector Pension schemes like Swavlamban. In addition, coverage of households in hilly, tribal and difficult areas would be carried out during this phase. Moreover, this phase would focus on coverage of remaining adults in the households and students.An exhibition on technology and financial literacy will also be organised as part of the launch function.The highlights of the scheme are: All the rural and semi urban areas of the country are proposed to be mapped into Sub Service Areas (SSA) comprising 1,000-1,500 households with an average of 3-4 villages with relaxation in north-eastern and hilly states.It is also proposed that looking at the viability of each centre of around 74,000 villages with a population of more than 2,000 which were covered by Business Correspondents (BCs) under the Swabhiman Campaign will be considered for conversion into full fledged brick mortar branches with staff strength of 1+1/1+2 in the next three years.All the 6 lakh villages across the entire country are to be mapped according to the service area of each bank and will have at least one fixed point banking outlet catering to each SSA. It is proposed that the SSAs shall be covered through a combination of banking outlets i.e branch banking and branch less banking. Branch banking means traditional brick & mortar branches. Branchless banking comprises of fixed point BCs, who act as representative of bank to provide basic banking services.The implementation strategy of the plan is to utilise the existing banking infrastructure as well as expand it to cover all households. While the existing banking network would be fully geared up to open bank accounts of the uncovered households in both rural and urban areas, the banking sector would also be expanding itself to set up an additional 50,000 Business correspondents (BCs), more than 7,000 branches and more than 20,000 new ATMs in the first phase. The comprehensive plan is necessary considering the learnings from the past where a large number of accounts opened remained dormant, resulting in costs incurred by banks and no benefits to the beneficiaries. The plan, therefore, proposes to channel all government benefits (from centre/state/local body) to the beneficiaries to such accounts and pushing the Direct Benefits Transfer (DBT) scheme of the Union Government including restarting the DBT in LPG scheme. MGNREGS sponsored by the Ministry of Rural Development (MoRD, GoI) is also likely to be included in Direct Benefit Transfer scheme.Keeping the stiff targets in mind, in the first phase, the plan would focus on first three pillars starting from 15th August, 2014.The target for setting up additional 50,000 BCs is quite challenging given the constraints of telecom connectivity. In order to achieve this plan, phase-wise and state-wise targets for banks have been set up in the first phase.In order to achieve a “demand” side pull effect, it would be essential that there is branding and awareness of the BC model for providing basic banking services, banking products are available at BC outlets along with RuPay Cards. A media plan is also being worked out iconsultation with banks.Further, a project management consultant/group would be engaged to help the department implement the plan.It is proposed to launch the programme simultaneously at national level in Delhi, at every state capital as well as district headquarters.A web-portal would be created for reporting/monitoring of progress.Roles of various stakeholders like other departments of the central government, state governments, RBI, NABARD, NPCI and others have been indicated.Gram Dak Sewaks in rural areas are proposed as BCs for Banks.The Department of Telecom has been requested to ensure that problems of poor and no connectivity are resolved. They have informed that of the 5.93 lakh inhabited villages in the country (2011 census) only about 50,000 villages lack telecom connectivity.
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Finance Minister Arun Jaitley said on Thursday (21 August) that the government was working to tighten up risk management in the banking sector, responding to recent scandals that have raised doubts about lending practices at state banks.He did not name any bank, but his comments followed the launch of an investigation into whether the head of state-controlled Syndicate Bank took bribes to roll over a loan to family-controlled Bhushan Steel."Some recent instances have been disturbing," Jaitley told a banking audience in New Delhi."I would only hope that they are a drop in the ocean and we have all learnt the lessons from such incidents, and there will be no repetition of them."The investigation into Syndicate Bank has raised broader concerns about weak oversight, corruption and politically directed lending at India's dominant state banks, which are weighed down by bad loans.In his maiden budget last month, Jaitley said state banks would need $40 billion in fresh capital by 2018 to meet international capital adequacy standards. Much of this cash is expected to be raised on financial markets.The Central Bureau of Investigation has arrested the chairman of Syndicate Bank and is questioning the head of Bhushan Steel, which owes $6 billion and was this week put under tighter scrutiny by its creditors.The companies and their heads all deny wrongdoing.(Reuters)
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Shares of state-run oil companies gained on hopes of better-than-expected results by sector leader Oil and Natural Gas Corp later in the day.Hopes of lower subsidy losses as crude oil falls help oil retailers.Brent near 13-month trough below $103 on brisk supplies.ONGC was up 1.8 per cent, while Oil India was up 1.2 per cent.Among retailers, Hindustan Petroleum Corp gained 3.3 per cent, Bharat Petroleum Corp advanced 3.1 per cent while Indian Oil Corp was higher by 2.9 per cent.(Reuters)
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