MUMBAI: Reserve Bank ofIndiaDeputy Governor KC Chakrabarty on Friday said interest rates inIndiawere not too high to impact growth, throwing cold water on hopes of central bank action to revive a sputtering economy.
This comes only days after fellow Deputy Governor Subir Gokarn raised expectations of a rate cut by saying moderate core inflation and softening global crude prices offered the central bank room to lower policy rates.
“I don’t think that rates are so high that they can significantly impact corporate growth,” Chakrabarty said on the sidelines of a seminar in Mumbai, just 10 days before the central bank’s mid-quarter review of the monetary policy.
The Sensex fell after Chakrabarty’s comment, but recovered from losses to end up 0.4% at 16,719 points. It had risen over 400 points on Monday following Gokarn’s statement.
The index ended the week higher by 754 points, the largest weekly gain since January.
Chakrabarty, in seeming contrast to Gokarn, appeared to deflate all hopes of a rate cut. “The cost of borrowing will not come down significantly for corporates even if rates are cut,” he said.
India’s GDP growth plunged to a nine-year low of 5.3% in the three months to March, according to official data released on May 31, putting pressure on the RBI to cut rates at its policy meeting on June 18. Repo rate, the rate at which the RBI lends to other banks, is at 8% while the cash reserve ratio (CRR) is at 4.75%. CRR is the portion of deposits banks are required to keep with the central bank.
Chakrabarty said the RBI’s top priority now was to rein in inflation, which stood at an average 7.1% in the first four months of 2012 against 9.5% last year. He said rates could fall only if inflation came down, adding that infrastructure projects in the country had not suffered because of lack of financing.
Chakrabarty also said the RBI would want banks to put in place a proper rate transmission mechanism, referring to the token 25-basis-point cut in lending rates by commercial banks even as the RBI reduced CRR by a cumulative 125 basis points since January.
The deputy governor also underlined the Reserve Bank’s concerns over rising bad loans of banks, saying lenders must improve their ability to manage asset quality.
He, however, stressed that bad loans did not pose a threat to the stability of the system.
ET View: The market is learning to live with KC Chakrabarty, the RBI deputy guv best known for his blunt one-liners that often contradict and embarrass – as it did on Friday – his boss and colleagues. Seasoned traders felt it was one of Chakrabarty’s personal statements, delivered in his customary style.
Most ignored it while some bond dealers took it as an opportunity to book profits. Chakrabarty’s soundbite came a few days after another DG, Subir Gokarn, hinted RBI could cut rates. The damage was limited and many would even agree with Chakrabarty’s view. But it is another instance of how financial markets are exposed to confusing signals and multiple voices.
PARLIAMENTARY PANEL GRILLS FINMIN ON GST
NEW DELHI: A parliamentary panel today criticised the finance ministry over the Constitution Amendment Bill for the Goods and Services Tax (GST), questioning the rationale behind the ministry’s claim that the new indirect tax regime would add one per cent to India’s gross domestic product (GDP). In its first meeting with finance ministry officials on GST, the standing committee on finance, headed by Bharatiya Janata Party leader Yashwant Sinha, posed various questions before them. It said the revenue department had not tried hard enough for an early rollout of the GST regime. The committee is likely to give its report in the monsoon session of Parliament, said a person privy to the development. In its presentation before the committee on various facets of GST, the ministry said the proposed tax system would expand India’s GDP by one per cent, or about Rs 1 lakh crore. To this, a committee member sought to know on what grounds was the ministry making such “tall claims”. (For details log on to : http://www.business-standard.com/india/news/parliamentary-panel-grills-finmingst/476814/)
RBI UPS LIMIT ON INWARD REMITTANCES
MUMBAI: The Reserve Bank of India (RBI) on Friday raised the limit on the number of foreign remittances an individual can receive from 12 to 30 per calendar year. However, the cap on the amount of each transaction has been kept unchanged at $2,500 per person. Market participants said the need for foreign funds to support the rupee would have triggered the move. “More remittances will certainly help in the current conditions when we need to attract more foreign fund inflows,” said a senior treasury official from a large public sector bank. The official added people would also wish to take advantage of the weak rupee levels. The measure is expected to benefit people who have more than one source of receiving money from abroad. Also, senders who need to remit money more frequently are set to benefit. “A number of people using this facility are employed in blue-collar jobs and have a multiple pay calendar. In such cases, this relaxation will surely be of help,” said Kiran Shetty, managing director of Western Union in India. (For details log on to : http://www.business-standard.com/india/news/rbi-ups-limitinward-remittances/476810/)
IMPACT OF HIGH RATES ON GROWTH BEING OVERPLAYED, SAYS RBI
MUMBAI: A senior official of the Reserve Bank of India (RBI) today said tight monetary policy alone was not responsible for the slowing of economic growth, though it might be a contributing factor. On the sidelines of a summit on financial inclusion organised by SKOCH here, RBI deputy governor K C Chakrabarty said: “Interest rates affect growth because inflation affects growth. If inflation comes down, interest rates will come down. But to say that growth is going down only because of interest rates is a little bit of exaggeration.” The interest rate aspect (on the slowing growth) was being overplayed, he added. India’s GDP growth for 2011-12 grew 6.5 per cent, lowest in the past nine years. This slowdown is being partly attributed to the central bank’s tight monetary policy. RBI had raised interest rates regularly between March 2010 and October 2011 to clamp on inflation. (For details log on to : http://www.business-standard.com/india/news/impacthigh-ratesgrowth-being-overplayed-says-rbi/476794/)
RBI TO INFUSE RS 12K CRORE NEXT WEEK
MUMBAI: The Reserve Bank of India (RBI) today announced an auction under open market operations (OMOs) to purchase Rs 12,000 crore of government bonds on Tuesday. No OMOs were conducted this week. “RBI must have come up with the OMO keeping in mind the pressure on liquidity conditions ahead of advance tax payments on June 15,” said a bond dealer with a public sector bank. According to the issuance calendar, bond sale auctions are not scheduled next week. The government today raised Rs 7,000 crore under the new 10-year benchmark bond at a coupon rate of 8.15 per cent. Issuances in the previous benchmark carrying a coupon rate of 8.79 per cent had reached Rs 83,000 crore and the market was already using the bond maturing in 2024 as the next best alternative. RBI also auctioned Rs 3,000-crore worth of bonds maturing in 2018, another Rs 3,000-crore worth of bonds maturing in 2030 and Rs 2,000-crore worth of bonds maturing in 2036. (For details log on to : http://www.business-standard.com/india/news/rbi-to-infuse-rs-12k-cr-next-week/476793/)
FINMIN CITES FALL IN CORE INFLATION TO MAKE CASE FOR LOWER RATES
NEW DELHI: Ahead of the Reserve Bank of India’s (RBI) mid-quarter review of monetary policy on June 18, the finance ministry has pitched for a low interest rate regime in order to support faltering growth, while central bank officials have sent out mixed signals. Economic affairs secretary R Gopalan on Thursday sought to build a strong case for an interest rate cut, citing the urgency of driving growth and the fall in core inflation. But RBI deputy governor KC Chakrabarty on Friday took a slightly different line, saying rates were not “that high to significantly affect growth.” Interestingly, Subir Gokarn, another deputy governor had said earlier this week that below-trend growth and falling crude oil prices offer the RBI a window to ease policy stance. Gopalan said average annual headline inflation for the year is expected at 6.5-7%, even after taking into account the effect of the recent hike in petrol prices. Core inflation — a key metric used by RBI in deciding policy rate – has fallen below 5%, Gopalan said, indicating there is scope for reduction in interest rates. (For details log on to : http://www.financialexpress.com/news/finmin-cites-fall-in-core-inflation-to-make-case-for-lower-rates/959877/)
RBI TO INFUSE R12K CRORE INTO MARKET TO EASE LIQUIDITY
MUMBAI: The Reserve Bank on Friday announced that it will pump in R12,000 crore in the market on June 12 by buying government securities to ease the liquidity situation. ‘‘Consistent with the stance of monetary policy and based on the current assessment of prevailing and evolving liquidity conditions, the RBI has decided to conduct open market operations (OMOs) by purchasing the following government securities for an aggregate amount of R12,000 crore on June 12, 2012,’’ it said in a statement. As part of the OMOs, the RBI will purchase government securities maturing in 2020 (bearing interest rate of 8.19%), 2021 (8.79%), 2022 (8.08%) and 2024 (7.35%). The auction, it added, would be held through the multi-security auction using the multiple price method. (For details log on to : http://www.financialexpress.com/news/rbi-to-infuse-r12k-cr-into-market-to-ease-liquidity/959860/)
RBI SLASHES RTGS THRESHOLD LIMIT TO R1 LAKH TILL TODAY
MUMBAI: The Reserve Bank on Friday said it has cut the threshold limit in Real Time Gross Settlement System transactions to R1 lakh from existing R2 lakh until June 9, 2012, due to some technical issues. “To ensure that customers were not unduly inconvenienced, the Reserve Bank temporarily brought down the threshold limit in Real Time Gross Settlement System (RTGS) to R1 lakh from the existing R2 lakh. This arrangement would continue till Saturday, June 9, 2012,” RBI said in a notification. There was delay in processing of transactions of RBI’s National Electronic Funds Transfer (NEFT) on June 5 due to some technical glitches that resulted into delay in transmission to destination banks. However, issues were addressed to large extent by June 6, RBI continues to monitor and address some residual issues, it said. (For details log on to : http://www.financialexpress.com/news/rbi-slashes-rtgs-threshold-limit-to-r1-lakh-till-today/959882/)
BANKERS SEE 0.25 PER CENT REDUCTION IN REPO RATE ON JUNE 18
MUMBAI: Bankers today said they expect the Reserve Bank to cut its key rates by 0.25 per cent at the forthcoming mid-quarter review given the present need to boost growth. “Growth has fallen and with inflation continuing to be flat, I expect the RBI to cut rates by 25 bps,” Central Bank of IndiaChairman and Managing Director M V Tanksale told reporters on the sidelines of the Skoch summit here. Andhra Bank also expects a similar reduction in the policy rate, Chairman and Managing Director B A Prabhakar said. On if the bank will pass on the benefit in the case the RBI cuts rates to borrowers, Tanksale said the bank will first wait for a reduction in deposit rates which can bring down the cost of funds, before taking a call on the issue. Terming State Bank of India’s decision to lower interest rates on select deposits by up to 0.25 per cent as a “good move”, he said his bank will take a call on it after June 18, when the RBI will be reviewing its monetary policy. (For details log on to : http://www.financialexpress.com/news/bankers-see-0.25-reduction-in-repo-rate-on-june-18/959541/)
BANKERS OFFERED 25 PER CENT RAISE TO TURN INVESTIGATORS
NEW DELHI: Guess who is ready to don the sleuth’s hat? Bankers will soon get an opportunity to join the ranks of inspectors in the Central Bureau of Investigation (CBI). The CBI, facing a shortage of investigative officers and a rise in financial offences, is planning to recruit for short tenures personnel from public sector banks working at the corresponding grade of CBI Inspector. Those hired will be a part of the CBI’s Bank Fraud Investigation Cell. In all, 25 such posts have been created in the investigative body. The agency would offer a hike of 25 per cent on existing salaries, a senior CBI official told Business Standard. Since the task for the bankers-turned-inspectors would be different from their regular work, the CBI will provide them internal training at its academy. Those applying must have five years of experience in the intelligence department of their banks. The officers would be on CBI payrolls for three years. The tenure can be extended up to five years. (For details log on to : http://www.business-standard.com/india/news/bankers-offered-25-raise-to-turn-investigators/476811/)
VIJAYA BANK’S SPECIAL DEPOSIT SCHEME
BANGALORE: Vijaya Bank has launched a 100-day special campaign to augment its retail business and customer acquisition. A press release from the bank said that the campaign started on June 1, and will end on September 8. During this period, the bank is offering a special V-Vriddhi Term Deposit, a 400-day limited period term deposit scheme, at 9.75 per cent per annum. The bank is also offering a V-Vriddhi Recurring Deposit with a fixed maturity amount at a higher rate of interest especially during the campaign period. Besides, vehicle loan customers can enjoy a 10-basispoint concession, while home loan buyers can get loans at a 20-basispoint concession, and a waiver of processing fees during the campaign period. Home loans start from 10.55 per cent, while vehicle loans start at 11.20 per cent. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3506635.ece)
IRDA SEEKS HALF-YEARLY REPORTS ON TRADE CREDIT INSURANCE
HYDERABAD: The Insurance Regulatory and Development Authority has directed non-life insurance companies to submit half-yearly and yearly reports on trade credit insurance business. “With a view to maintaining consistency in reporting and better analysis of the credit insurance portfolio, the Authority has devised certain forms for reporting under credit insurance,” Mr Randip Singh Jagpal, Joint Director, IRDA, said in a circular issued on Thursday. All the non-life insurers should submit half-yearly reports for the financial year 2011-12 within 15 days, the circular added. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3506638.ece)
FIPB NOD FOR NHB-LED MORTGAGE GUARANTEE CO
A mortgage guarantee institution, promoted by the housing finance regulator National Housing Bank (NHB), has received the Foreign Investment Promotion Board’s (FIPB) approval to kick off operations, RV Verma, CMD, NHB, said on Friday. NHB is partnering with international institutions like the Asian Development Bank (ADB) and International Finance Corporation (IFC). NHB will have a 38% stake and will be the anchor investor. The firm is being set up to compensate banks and housing finance companies (HFCs) in case of defaults by home loan borrowers. The initial paid-up capital of the venture will be R120 crore. The proposed mortgage guarantee company would be a non-banking finance company. Verma said this was not the first time that NHB was taking a stake in a financial institution. It currently holds stakes in Central Bank Home Finance and Mahindra Rural Finance. (For details log on to : http://www.financialexpress.com/news/fipb-nod-for-nhbled-mortgage-guarantee-co/959878/)
SEBI TIGHTENS REPORTING NORMS FOR PARTICIPATORY NOTES
NEW DELHI: The Securities and Exchange Board of India (Sebi) has tightened the rules governing participatory notes (P-notes) by cutting the time lag in reporting these transactions. According to a circular issued yesterday, Sebi said foreign institutional investors (FIIs) will have to report monthly details of transactions done through P-notes within 10 days. Earlier, FIIs had a window of six months to report these transactions. The first such report will be for the month of October 2012, by November 10, 2012. “FIIs issuing ODIs/PNs shall submit details of ODI/PN transaction report (Annexure A, B and C), along with the monthly summary report by 10th of every month for the previous month’s ODI transactions,” it said. Three annexures provide the format for reporting P-note activity, details of transactions and assets under management, respectively, under the heads of equity, debt and derivatives. (For details log on to: http://www.business-standard.com/india/news/sebi-tightens-reporting-norms-for-participatory-notes/476781/)
SEBI CHAIRMAN RUES REFORM INERTIA
MUMBAI: Amid rising concerns about the Indiagrowth story, the government got an unusual critic today. U K Sinha, Securities and Exchange Board of India (Sebi) chairman, said the country needed to get its act together on policy reforms as well as execution. He said the delay in reform process on several aspects was a serious issue and one needed to ponder over it. He was speaking at the SKOCH Summit on how to re-fuel the country’s growth. “There is an overall feeling of anger and rejection on how things which were so good four-five years back, not only in Indiabut many other parts of the world, have come to such a stage. What is it that went wrong? What is it that we need to do?” he asked. Sinha said some of the crucial reforms were pending for a long time. “Some of the reforms have been on the anvil for almost a decade and are yet to come through. That is something for all of us to ponder very seriously , on how long we can go on deferring this.” (For details log on to : http://www.business-standard.com/india/news/sebi-chairman-rues-reform-inertia/476813/)
CHINA’S FIRST ‘JUNK BOND’ MARKET OPENS FOR BUSINESS
SHANGHAI: The Shanghai Stock Exchange has begun issuing approvals for companies to begin issuing “junk bonds”, as Beijingseeks to help cash-starved private Chinese firms find credit. A statement issued through the Shanghaiexchange’s microblog approved seven Chinese companies to issue high-yield bonds via private placements to qualified investors. The bonds may then be bought and sold — albeit under highly restricted conditions — on Shanghai’s fixed-income trading platform. Issuers, analysts and brokerages who spoke to Reuters were enthusiastic about the launch of the new trial programme. “The new category of bonds offers us a new channel for capital operations,” said Xie Hongbo, chairman of Beijing Ninestar Technology Co, an internet service provider which is awaiting permission to raise 10 million yuanthrough 18-month bonds on the Shenzhen Stock Exchange. (For details log on to : http://www.financialexpress.com/news/chinas-first-junk-bond-market-opens-for-business/959880/)
CANARA ROBECO LAUNCHES GOLD SAVINGS FUND
MUMBAI: Canara Robeco Asset Management Company has launched Canara Robeco Gold Savings Fund. An open-ended fund-of-funds scheme, it will invest in Canara Robeco’s gold ETF units. The scheme is benchmarked against the domestic price of physical gold. The new fund offer is open for subscription from June 4 to 18. The minimum ticket size for the scheme is Rs 5,000 and minimum additional purchase amount is Rs 1,000 for lump sum investments. Options to invest in the scheme through monthly or quarterly SIPs are also available. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-markets/article3506623.ece)