India’s central bank is said to be ready to propose radical changes in the structure of the country’s Rs.77 trillion banking industry, in line with similar reforms introduced in developed countries after the 2008 global financial crisis.
The proposals, expected to be released in a discussion paper in the next two weeks, include consolidation of some large banks to create two-three global ones, the setting up of smaller banks, separate licences for specific banking operations instead of a single universal one, continuous licensing for new banks and conversion of some urban cooperative banks into full-fledged commercial banks, according to persons familiar with the development who did not want to be named.
A Reserve Bank of India (RBI) working group is framing the key points in the discussion paper and is in consultation with financial market committees to apply the final touches, said one of the people cited above.
The suggestions, if implemented, will be India’s first step towards effecting far-reaching reforms and come at a time when RBI has invited companies to apply for banking licences, nine years after the apex bank last issued new licences. >> Read More Reserve Bank’s decision to maintain a status quo on interest rates has been influenced by external sector considerations, specially widening current account deficit, Chairman of Prime Minister’s Economic Advisory Council, C Rangarajan, said.
”Yes, I think it is a difficult choice. The RBI has taken a cautious stand…the decision has been largely influenced by the external sector consideration. The current account deficit (CAD) is high and more recently the rupee has been under pressure. This appears to have been a major factor influencing the RBI to pass this stand,” Rangarajan said post-RBI policy announcement.
The Reserve Bank in its first mid-quarter policy review today kept the key interest rates unchanged because of elevated food inflation, rupee depreciation and uncertainty over foreign fund inflows.
He said going forward the price situation seems to be continuing and there have been some administered prices that needs revision.
“But even the depreciation of the rupee will have some impact on the price situation,” he added. >> Read More
In a move which could affect UK – based Marks & Spencer’s (M&S) practice of selling “sub-brands” at its single brand retail stores here, DIPP has written to the Finance Ministry that there is no such concept of “sub-brands” under the FDI policy in the sector.
“M&S is not using its brand name on its ‘sub-brands’ and there is no legal entity such as ‘sub-brands’. We have sent our response to the Department of Economic Affairs. Now it is upto them to proceed further,” a source said. Questions have been raised by the Finance Ministry over M&S, along with Zara and Massimo Dutti selling sub-brands in their single brand retail (SBR) stores.
M&S was under the scanner for a possible violation of FDI policy in single-brand retail that restricts such players from retailing multiple brands in the single brand retail store. The Finance Ministry had raised the matter with the DIPP seeking if M&S practice of selling sub-brands was in conformity with the foreign direct investment (FDI) policy. >> Read More
India should monetise their huge gold stockpiles of over 20,000 metric tonnes according to the World Gold Council (WGC) as reported by Bloomberg this morning.
“In the long term gold could be monetized as a financial asset,” Aram Shishmanian, the CEO of the WGC said in India overnight.
The World Gold Council has approached the Reserve Bank of India (RBI) to work with it so that bullion could be used as a financial asset, rather than just a physical asset.
Exactly how the considerable store of wealth that is the gold of Indian people could be monetised was not said. >> Read More
Government’s first issue of the 10-year inflation indexed bonds, which aims at discouraging gold investments, was today oversubscribed by more than four times, though only bids worth Rs 1,000 crore were accepted.
As per the RBI, which auctioned the ’10 Years Inflation Indexed Government Stock, 2023′, there were 167 competitive bids worth Rs 4,616 crore of which only 26 amounting to Rs 985.94 crore were accepted.
Also all the eight non-competitive bids by retail and mid-segment investors totalling Rs 14.06 crore were accepted, it said, adding the cut off-yield for the auction was fixed at 1.44 per cent. >> Read More
The Reserve Bank of India (RBI) tightened the rules for corporate debt recasts on Thursday, seeking to address the risk of restructured loans turning bad as the economy struggles for recovery from its slowest pace of growth in a decade.
Banks should set aside more money to cover restructured loans and the promoters of companies seeking a debt recast have to be made personally liable for compensation for losses incurred by lenders engaged in such an exercise, RBI said.
The move reflects the concern of the central bank over debt recasts, already at Rs.2.29 trillion in March and likely to surge further in the context of a sluggish economy, putting the earnings of overburdened state-owned lenders even more at risk. It also echoes the concerns expressed by finance minister P. Chidambaram earlier this year. >> Read More Comments Off | Leave Comment Posted in: Analysis
Earlier this month, when the Reserve Bank of India (RBI) indicated that a cut in policy rates could be the last in a series of four cuts since April 2012, it set off alarm bells for industry, which has not been happy despite a 7.25 per cent repurchase (repo) rate, the lowest since May 2011. In fact, the central bank has often been criticised by the government and industry for its conservative approach in easing interest rates on grounds that high rates are responsible for stalled investments and, therefore, growth. Is this criticism warranted?
Things turned sour late last year when Finance Minister P Chidambaram openly remarked: “If the government has to walk alone to face the challenge of growth, well, we will walk alone.” The statement came after RBI Governor Duvvuri Subbarao, in his policy review on October 30, 2012, cut the cash reserve ratio from 4.5 per cent to 4.25 per cent but resisted pressure to cut the repo rate, which is the rate at which banks access funds from the central bank. Just a day earlier, the finance minister had outlined a fiscal consolidation map and indicated that he expected the RBI to ease interest rates. >> Read More
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The Reserve Bank of India (RBI) said on Monday banks would not be allowed to give loans against units of gold exchange-traded funds (ETFs) and gold mutual funds.
As these products are backed by bullion and primary gold, the restriction on grant of loan against gold bullion will be applicable to loan against units of gold ETFs and units of gold mutual funds, the RBI said in a statement.
The RBI also said that while giving loan against gold coins sold by banks, the lenders should ensure that the weight of the coins does not exceed 50 grams per customer.
In a separate statement, the central bank said no advances should be given by non-bank financial companies (NBFCs) against bullion, primary gold and gold coins.
The RBI also said NBFCs should not give loans for the purchase of gold in any form including primary gold, bullion, jewellery, coins, units of gold ETFs and units of gold mutual funds.
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India’s gold imports are likely to exceed last year’s level to around 900 tonnes in the current calendar year on higher demand despite government curbs on its shipments to rein in current account deficit, a top official of World Gold Council said on Monday.
Last year, India—the world’s largest consumer—imported 860 tonnes of the precious metal, while demand stood at 864 tonnes in the same year.
“Looking at the trend in the initial 4-5 months of this year, we expect gold demand and imports to be higher than the last year at around 900 tonnes,” World Gold Council (WGC) India managing directorSomasundaram PR told PTI. The WGC had projected gold demand at 865-965 tonnes for 2013 calendar year. However, it is expected to be on the higher side of the band considering the demand trend in the first few months of the year, he said.
Domestic demand has increased since the prices have fallen significantly in the last one month, he added. >> Read More Comments Off | Leave Comment Posted in: Analysis
In the post-policy press conference, Dr. Subbarao, Big Boss of the RBI, made this innocuous statement:
Shishir Shindekar: Sir the housing price index is continuously growing, so do you feel any problem regarding the housing price bubble or like that?
Dr. D. Subbarao: No there is no bubble. Housing price index is showing an increase and we have reported that in our document that came out on Thursday. The monetary and macroeconomic development document which shows the housing price index, I think in 9 cities of the country and there is no bubble building up there. Okay, thank you let us move on.
I don’t know how you define the word “Bubble” but you have to see the following statistics in their own report. The India-wide House Price Index (HPI) – which uses registration data from local state governments to determine price rises, starting from March 2009, quarterly – is depicted below.
This shows you how prices have been going up. At a CAGR of 26% since March 2009, prices are growing way too fast. >> Read More
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