Reserve Bank of India (RBI) Governor Raghuram Rajan said the government and the Reserve Bank of India (RBI) shared similar views on inflation management, while reiterating a call for the US Federal Reserve to be more sensitive to emerging economies. Rajan's comments, in an interview with CNBC, come after Finance Minister P. Chidambaram last week chided the central bank over its focus on fighting inflation, saying the RBI needed to abide by government policy to promote economic growth. An RBI panel last month proposed the introduction of inflation targeting into monetary policy, with the specific aim of a consumer price index (CPI) of 4 per cent, with a 2 per cent band on either side. The RBI has raised interest rates by three-quarters of a percentage point since September to bring down consumer inflation, which fell to 8.79 percent last month from double digits in November, even as the government has traditionally preferred to focus on bolstering growth. "It's not as if the government is on a different page on what we've been doing on inflation thus far. They may have different views on what they would like to see done, but there is a process, there is a conversation," Rajan said in an interview with CNBC, broadcast by Indian channel CNBC-TV 18 on Monday. "I think there is fair amount of coordination at the highest level." The government and the central bank have often been at odds in fighting inflation. While the central bank has often blamed the government's expansive fiscal policy and failure to ease infrastructure bottlenecks for high inflation, a growth-obsessed government, at times, has found it hard to digest interest rate increases. "No Disagreement'The RBI is not technically independent - the governor and his deputies are appointed by the government - although it generally enjoys latitude in policymaking. Rajan said the central bank panel report on inflation was consistent with the government's stance. "We have a committee which has suggested a target, which is also by the way, consistent with the process the finance ministry's committee has suggested, so there is no disagreement about the broader need to get a framework in place," he said. "I think in terms of how I see the process, is really that the government sets the objective, and the central bank delivers on that objective," Rajan said. Rajan also reiterated his call for the Federal Reserve to take into account the impact of its withdrawal of monetary stimulus on emerging economies, despite saying he was comfortable with the current pace of tapering. "I actually welcome a measured pace of tapering. The only thing I have been calling for is that in the communication there should be some sensitivity to conditions in emerging markets," Rajan told CNBC. "And this is not from our perspective, this is broadly emerging markets, some of whom have been in trouble in the last few months. But I am fully prepared for a tapering that continues at this measured pace."(Reuters)
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Reserve Bank of India Governor Raghuram Rajan said a moderation in the minimum support prices for agricultural products would help curb inflation in the country."Inadequate" or "inappropriate" price adjustments in these areas will mean the central bank has to bear a bigger burden to combat inflation, Rajan said at an industry event on Thursday (13 February).The annual consumer price inflation eased more than expected to a 24-month low of 8.79 per cent in January, helped by moderating food prices, government data showed on Wednesday.(Reuters)
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ICICI Bank Ltd posted its slowest quarterly profit growth in four years as the ability of corporate borrowers to repay loans declined and the amount of funds set aside for bad debt almost doubled. India's biggest private sector lender, like rivals Yes Bank, HDFC Bank and IndusInd Bank, has had to contend with a wave of defaults by companies struggling to make ends meet as India's economy grows at its slowest pace in a decade. As a result, banks have increased the proportion of funds they extend to consumers from whom demand for home and car loans in particular has picked up as banks open branches in new territories. That shift helped ICICI on Wednesday (29 January) report net profit of Rs 2,530 crore in October-December from 22.5 billion a year earlier. That compared with the Rs 2,460 crore mean estimate of 23 analysts polled by Thomson Reuters I/B/E/S. Net interest income, or the difference between interest earned and paid, rose about 22 per cent to Rs 4,260 crore. Tax expense rose 45 per cent to Rs 1210 crore, hurting profit growth. Shares of ICICI, with a market value of $18.6 billion, briefly fell after the results but pared losses to trade up 0.8 per cent. The Sensex was up 0.3 per cent. ICICI's 13 per cent profit growth compared with Yes Bank's 21 per cent, HDFC Bank's 25 per cent and IndusInd Bank's 30 per cent. Past Its BestOf 50 analysts following ICICI, 44 recommend or strongly recommend buying the bank's shares, according to Thomson Reuters Starmine. The remaining six advise investors to stick with their current ownership, as some expect revenue growth to slow in coming quarters and credit costs to rise. "We believe the bank is past its best in earnings, at least in the medium term," Kotak Securities banking analyst M. B. Mahesh said this month in a research note. Net interest margin, a gauge of profitability, is likely to narrow because of a switch in focus to retail lending, Mahesh said. ICICI's net interest margin grew to 3.32 per cent from 3.07 per cent, higher than an industry average of around 3 per cent. Net non-performing loans as a percentage of total assets rose to 0.94 per cent from 0.76 per cent, primarily because of corporate defaults. The industry average is 2 percent. Mahesh changed his recommendation on ICICI to buy from sell after the stock fell 12 per cent over the past two months. Even so, he maintains a "cautious" view on the stock. Shares of ICICI, 38.4 percent held by foreign investors including Deutsche Bank Trust Company Americas and Merrill Lynch Capital Markets, are undervalued when compared with peers, trading at 1.8 times the book value of the bank's assets, according to Thomson Reuters Starmine. By comparison, HDFC Bank trades at 4.4 times its book value, IndusInd Bank at 3 times and Yes Bank at 2.2 times. (Agencies)
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When the Reserve Bank of India discontinued 25 paise coins in April 2011, it left the product marketing division of Parle Products, India’s leading confectioner and biscuit maker, in a quandary.Parle’s top-selling Kismi Toffee, wrapped in red and white paper, was immensely popular in small cities and villages. Priced at a quarter of a rupee, it was a sweet steal for customers. The size of the cardamom-flavoured toffee complimented its price. But that brand-product-price synergy changed when RBI withdrew 25 paise coins from circulation.“We had to upgrade Kismi Toffee to 50 paise per piece, which was a crowded price point. Almost all Indian toffees and candies are priced at 50 paise and Re 1 per piece,” says Bhavin Panchamia, senior product manager, Parle Products.“Our concern then was how to sell Kismi Toffee at double the cost; also, we did not want to discontinue the toffee as it was a great brand. We decided to increase the size of the toffee to justify the hike in price,” adds Panchamia.While Parle acted in the interest of its customers by re-sizing Kismi Toffee, lesser-known confectioners and small-scale industrial (SSI) units that made products such as pickles in small packets, sweetened tamarind and gooseberries-in-brine, never really bothered to add value. They just changed the price tag to 50 paise. The discontinuation of 25 paise coins, in a way, ‘burdened’ 50 paise and Re 1 coins as countless articles priced at 25 paise got upgraded to these price points. Rising inflation worsened the situation, resulting in a severe shortage of both ‘small coins’ (up to 50 paise) and ‘rupee coins’ (Re 1 and higher denominations). “Higher raw material costs and a shortage of coins at apt price points are causing a lot of problems for chocolate manufacturers. If we increase the price, we face stiff resistance from dealers and retailers; but if we do not, we’ll suffer losses. It’s a very difficult decision,” says Narain Jagwani, CEO of Pune-based Atlas Confectioners. According to confectionery manufacturers, 98 per cent of toffees, candies and eclairs are sold in the Re 0.50-1 price range. But confectioners are now contemplating raising product prices to the next level.“We have a Re 1 product (a lollipop), but it doesn’t make sense to focus on that price point. We’ll start promoting our Rs 5 product now,” adds Jagwani.Inadequate supply of small coins can wreak havoc on the economy. It can jack up prices of small commodities and services, creating a kind of indirect inflation. Take the case of tollways: the Bandra-Worli Sea Link has increased the base toll to Rs 55 from Rs 50. Likewise, toll rates on the DND Flyway, between Delhi and Noida, have been marked up from Rs 11 to Rs 12 for two-wheelers and from Rs 22 to Rs 25 for cars. 9 billion coins were ordered by RBI in 2012-13 (Shutterstock)“We raised toll rate for cars to Rs 25 as it was getting increasingly difficult for us to return Rs 3 (to users) due to the shortage of Re 1 and Rs 2 coins. We cannot keep people waiting for change,” says Anwar Abbasi, senior manager at Noida Toll Bridge Company, which manages the DND Flyway.FMCG companies have also been impacted by the shortage of small coins and the consequent devaluation of the Re 1 coin. Shampoo manufacturers who revolutionised the Re 1 sachet, are among the worst hit. Re 1 and 50 paise sachets account for over 69 per cent of shampoo sold in India. “Devaluation and shortage of Re 1 coins are prompting shampoo manufacturers to reduce ‘net quantity’ in sachets. Most shampoo makers have reduced their sachet quantities from 10 ml to 8 and 6 ml,” says C.K. Ranganathan, CMD of the Rs 1,100-crore consumer staples company CavinKare. “The value of Re 1 has depreciated significantly over the past few years; 50 paise as a price point may soon cease to exist,” adds Ranganathan.Unavailability of coins could also encourage black-marketers to hoard them, only to release them at a premium later. While it is not clear if shortage of coins is causing problems at the macro level, it sure is causing a lot of hardship to people on the street. “There’s a shortage of Re 1, Rs 2 and Rs 5 coins. We mostly get Rs 10 for a ticket that is worth Rs 6. The onus falls on us to pay back the remaining Rs 4; many a time, we request passengers to forsake small change,” says Ashok Kutekar, a BEST bus conductor on the Worli-Elphinstone Ring Road route in Mumbai.Kutekar’s problem is endorsed by Kishore Sonurlekar, who manages the ‘ticket and cash department’ at BEST’s depot in Colaba. “We don’t get enough change for the sum of money (including coins) we release from our coffers every day. If we give Rs 100 worth of coins and notes to our conductors every morning, we get back only Rs 20 worth of small change at the end of the day,” he says.That said, Sonurlekar’s job is made easier by ICICI Bank, from where he sources coins. Earlier, transport corporations, tollways, hotels and others sourced coins from RBI offices directly. A few years ago, RBI scrapped direct coin purchase and instructed public sector and private banks to undertake the task of distributing coins in the country. break-page-breakThe Missing PiecesLack of minting infrastructure and poor demand estimation are said to be the reasons behind the shortage of coins in the country. RBI and its mint, Security Printing and Minting Corporation of India (SPMCIL), have failed to release adequate new coins into the economy. In fact, SPMCIL has been falling short of targets consistently over the past few years due to inadequate infrastructure. As per RBI data, there are 84.72 billion coins in circulation (adding up to Rs 15,300 crore) as on 31 March 2013, up from 78 billion pieces in 2012. Of this, 14.78 billion are small coins (50 paise coins), 35.88 billion are Re 1 coins, 22.11 billion Rs 2 coins, 10.67 billion Rs 5 coins and just over 1 billion Rs 10 coins. There are also around 37 billion notes in Rs 2, 5 and 10 denominations. Despite the increase, the demand for coins continued to outstrip supply.“I agree there’s a shortage of coins. RBI is working out ways to bridge the demand-supply gap. We’re also streamlining the distribution system; commercial banks have been directed to handle coins more efficiently,” says B.P. Vijayendra, principal chief general manager, RBI. “Our main problem is that SPMCIL has not been able to mint as many coins as we want in the system,” he adds.It is usually RBI that decides the volume and value of banknotes and coins to be printed/minted each year. The decision is taken on the basis of inflation, gross domestic product (GDP) growth, replacement of soiled notes/defaced coins, metal prices and reserve stock requirements. In times of high inflation, the central bank is forced to print/mint more currency. This, perhaps, was the reason why RBI placed a request with SPMCIL to mint 9 billion coins last year — a sharp departure from its regular (annual) order of 6 billion pieces. But SPMCIL was not equipped to handle the sudden spurt in demand. The mint could only supply 6.8 billion pieces against RBI’s order of 9 billion. The latest indent put forth by RBI (for 2013-14) requires SPMCIL to mint over 12 billion coins. Mint officials, however, see this as an unachievable target. SHRINKING TENDERToday, the number of sub-Re 1 coins in circulation is less than a third of what it was in 2011“RBI projections have been quite erratic. They just doubled the minting order from 6 billion coins in 2011-12 to 12 billion in 2013-14. We’ll never be able to achieve it. At best, we’ll be able to log 7.6 billion pieces this year,” says a senior SPMCIL official on condition of anonymity.SPMCIL is fighting its own battle against inadequate infrastructure and outdated processes. The organisation needs at least Rs 800– 1,000 crore to modernise its mints. “Some 20 old machines will have to be scrapped. We’ll need at least 40 new coin processing machines (priced between Rs 8 and 10 crore a machine) to meet the RBI-projected coin demand. New polishing machines and dyes will have to be installed as well. There’s also need for more space for minting and storing coins,” adds the SPMCIL official.While there’s a sense of urgency among RBI and SPMCIL officials, the finance ministry seems unperturbed by the roadblocks. It is yet to take a decision with regard to modernisation of mints.Past Comes CallingIndia faced a similar situation in the 1980s, when it sought external help to tide over currency shortage. RBI had then outsourced the minting of 50 paise and Re 1 coins to the UK’s Royal Mint, the South Korean mint and the Royal Canadian Mint to meet demand.RBI’s decision to place an important sovereign function in the hands of foreign players came in for flak from nationalists. Irrespective of how nationalists feel, it appears that the ongoing crisis may soon have RBI reaching out to overseas mints to meet the coin shortfall.“Evidently, there has been a mismatch in demand and supply of coins that was not anticipated by RBI. There is less emphasis on minting coins of Re 1 and Rs 2 denominations as, with progressive inflation, there is little value in these coins,” says Madan Sabnavis, chief economist at CARE Ratings, a credit rating agency. “Further, with erosion in the value of lower denominations, the demand for higher denomination coins has increased. Such a situation has generated a black market for coins where the premium can vary between 5-10 per cent,” adds Sabnavis. break-page-breakAt Mercy Of MetalsIn Rs 5 and 10 denominations, RBI prefers to mint coins as these notes have a lifespan of just about 8-12 months, as opposed to coins that can remain in circulation for 10-12 years. However, both RBI and SPMCIL lack a correct estimate of coins to be minted, in the absence of clear data on the number of ‘defaced’ coins withdrawn from circulation.While coins last longer, minting them has its own issues as prices of metals keep fluctuating. The new 50 paise, Re 1, 2 and 5 coins are minted using ferratic stainless steel (FSS). A few Rs 2 and 5 coins have also been minted using cupro-nickel as base, while the new Rs 10 coins are bi-metallic, with an aluminium-bronze outer ring and cupro-nickel centrepiece. When minting bi-metallic and cupro-nickel coins, RBI and SPMCIL have to take into consideration the price of metals and signorage (the difference between the value of the bullion used and the face value of the coin). If metal prices are too high, it is not advisable to mint low-denomination coins. “Mints are conscious of higher metal prices. This, perhaps, is the reason why new coins are smaller and lighter (in weight). Almost all coins have been resized a point lower,” says Ravi Shankar Sharma, secretary, Numismatic Society of Calcutta.FSS is a good option for coins, but SPMCIL doesn’t have hot furnaces to recycle the tough metal. It uses the furnaces at the Salem Steel Plant to melt defaced FSS coins. A larger number of FSS coins would, therefore, require SPMCIL to install its own furnaces to recycle and re-use scrap.Being an independent government body, SPMCIL has to think about its margins. As per the government’s procurement structure, it derives higher margins for minting Rs 5 and 10 coins compared to 50 paise and Re 1 coins. An email query sent to SPMCIL failed to elicit any response till the time of going to press.DOGGED BY DEFICITSupply of coins from the mint is way short of requirements stated by RBI. The only exception was in FY12Hoarders’ DelightA couple of years ago, Indian intelligence officials swooped down upon organised gangs that helped smuggle coins to Bangladesh, where the coins (mostly Re 1, Rs 5 and 10) were melted down and turned into razor blades, chains and ornaments. According to media reports, the coins were retrieved from ground-level collectors, including beggars, at a premium of 10-15 per cent. The practice coincided with periods of high metal prices. Such illegal practices were also prevalent in the 1980s when nickel and copper coins were melted down to make ornaments and other knick-knacks. “We haven’t come across instances of coin melting in the recent past. We are quite vigilant; such malpractices will not escape us,” affirms P.K. Dash, additional director general, Directorate of Revenue Intelligence, Mumbai. While finance ministry mandarins and RBI policy-makers rack their brains to bridge the coin deficit, beggars and stall owners are having a swell time sponging out coins and selling them at a premium. Coins worth Rs 90 can easily fetch them a hundred rupee note in these times. There are just two ways to resolve the coin crisis. Either the government fast-tracks mint modernisation or RBI approaches overseas mints to turn out rupee coins. If it’s still unable to arrive at a decision, policymakers can always flip a coin to decide. alertsmenon@gmail.comtwitter@alerts menon(This story was published in BW | Businessworld Issue Dated 10-02-2014)
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Shares of Indian oil and gas companies gained after the government officially notified a decision taken last year to change the pricing formula for domestic natural gas from April 1, removing the uncertainty on what effectively constitutes a price hike.Deutsche Bank says the hike will be positive for the sector, and says Oil and Natural Gas Corp Ltd and Oil India Ltd will be the biggest beneficiaries, followed by Reliance Industries Ltd.Shares of ONGC and Reliance Industries gained more than 2 per cent, while Oil India rose 3.3 per cent.(Reuters)
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A $50 billion swap line between Indian and Japan is effective from 10 January, the Reserve Bank of India said.The agreement, which will be valid till 3 December, 2015, aims at addressing any short-term liquidity difficulties.The swap line was initially at $15 billion and following the exchange rate crisis in the summer both the countries entered into a pact to expand the line.(Reuters)
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The rupee is trading at 61.23/24 versus its close of 61.13/14 on 9 December, tracking losses in the domestic sharemarket and on the back of dollar demand from oil importers.The BSE Sensex is down 0.2 per cent on profit-taking after hitting record highs in the previous session.Traders expect the pair to remain in a 60.90 to 61.40 range during the session with stocks moves the key to direction as traders will watch the likely direction of foreign fund flows.Almost all Asian currencies trading stronger to the dollar.(Reuters)
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Oil prices stabilised on 26 November after the previous session's slide as traders questioned how quickly the Iranian nuclear accord could translate into higher supplies, while Asian shares got off to a cautious start.The yen regained some poise following Monday's steep decline to a six-month low against the dollar and a four-year trough versus the euro.US crude prices added 0.2 per cent to above $94 a barrel, pausing after the previous session's 0.8 per cent decline following a weekend deal between the West and Tehran to halt Iran's most sensitive nuclear activities in exchange for some relief from crippling sanctions."The interim six-month 'freeze' agreement just reached on Iran's nuclear programme should not have any impact on oil prices, aside from short-term sentiment, because core sanctions on oil and banking have not been touched," Societe Generale said in a note."We see a greater than 50 per cent chance that a comprehensive agreement will be successfully reached within six months....If and when that happens, it could take Iran three to nine months to recover the one million barrels per day in production lost since 2011."MSCI's broadest index of Asia-Pacific shares outside Japan inched up 0.1 per cent, adding to a 0.3 per cent rise in the previous session on the back of the Iranian deal.Thai assets looked set to come under further pressure on heightened political uncertainty as anti-government protesters forced their way inside the country's Finance Ministry and burst through the gates of the Foreign Ministry compound, in a bid to oust Prime Minister Yingluck Shinawatra.On Monday, the Thai SET index fell for a fifth straight session to an 11-week closing low and the baht tumbled to a two-week low versus the dollar.Citigroup said the Iranian nuclear deal could be a "get-out-of-jail-free card" for current account deficit countries, such as India, Indonesia and Turkey, which face a liquidity drain when the Federal Reserve eventually tapers in the coming months.Tokyo's Nikkei share average was likely to take a breather, with futures pointing to a weaker open after it climbed 1.5 per cent on Monday to within sight of a 5-1/2 year peak reached in May.The Japanese currency, which typically falls when share price rise, was up 0.2 per cent at 101.52 yen to the dollar and up 0.1 per cent at 137.27 to the euro.The euro was little changed at $1.35195, having fallen 0.3 per cent overnight."We remain bullish on the dollar heading into 2014 but remain tactically cautious on establishing longs, with a number of U.S. dollar pairs already trading at the high end of their ranges and data unlikely to be consistent enough to support expectations for an early tapering," analysts at BNP Paribas wrote in a note.Data showed on Monday that contracts to buy previously owned U.S. homes fell for a fifth straight month in October, hitting a 10-month low and adding to signs of cooling in the housing market.US stocks ended mixed overnight, with the Dow Jones industrial average posting a slim gain to end at another record high, while the S&P 500 eased 0.1 per cent.(Reuters)
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