RBI Moves SC In Sahara Case - June 7, 2008

The Reserve Bank of India versus Sahara battle on Friday moved to the Supreme Court.

The central bank challenged a high court stay order on its decision to bar Sahara India Financial (SIFCL) from accepting deposits. RBI claims it wasn't even heard by the high court on the issue.

Sahara gets HC stay on RBI ban

Former solicitor general T R Andhayrujina pleaded for RBI and sought early hearing in the appeal. A vacation bench, headed by justice Arijit Pasayat, said it would hear the appeal on Monday, June 9. Former additional solicitor general Mukul Rohtagi appeared for SIFCL.

The stay against the RBI order came on Thursday, from the Lucknow bench of the Allahabad High Court, a day after RBI banned the para-banking company from accepting fresh deposits or renewing old ones.

SIFCL has about Rs 18,000 crore deposits, made by at least 4 crore people.

RBI has stated violations over maintenance of directed investments, payment of minimum interest rate, asset-liability management guidelines and know-your-customer (KYC) norms for its decision.

RBI Raised Interest Rates On Deposits Of Two Years

State Bank of India, the country''s largest bank, on April 26 raised interest rates on deposits of two years and above with effect from June 1. The deposits for duration two years to less than three years will now earn an interest of 8.75 per cent, the same as deposits of one year to less than two years. Interest rates on deposits of three years to less than five years has been increased to 8.85 per cent from 8.5 per cent. Rates on deposits of five years and up to 10 years will be 9 per cent as against 8.5 per cent at present.

For senior citizens, the deposit of two years and up to 10 years has been bifurcated into two categories - deposit of three years to less than five years and 5 years to 10 years. Interest rates on the new categories will be 9.35 per cent and 9.5 per cent as against 9 per cent earlier, it said. Interest rates on senior citizen deposits of one year to less than two years will continue to be 9.25 per cent.

RBI Modified Provisioning Limit For Housing Loan

Reserve Bank on May 15 relaxed the risk provisioning norm for housing loan up to Rs 30 lakh, a move that would make it easier for banks to provide loans for purchase of residential properties. The central bank on Thursday issued notification in pursuance of the annual credit policy announcement made by the Reserve bank Governor Y V Reddy on April 29.

The move would provide the bank additional capital for lending more to housing sector. However, it may not result in immediate softening of interest rate for the housing sector, said Oriental Bank of Commerce Executive Director Allen C A Pereira. The RBI has modified the provisioning limit for housing loan to take care of the growing property rates mainly in the urban centers. As per the Basel II norms, banks are required to keep 9 per cent of the specified portion of the loan amount as capital. For up to Rs 30 lakh housing loan the risk provisioning norm would apply for the 50 per cent of the loan value. Earlier the specified amount was 75 per cent of the loan value between Rs 20-30 lakh. For loans exceeding Rs 30 lakh for purchase of residential property, the banks would have to make a risk provision on 75 per cent of the loan amount.

RBI Will Launch An Indiapay Credit Card An Indian Version

The Reserve Bank of India (RBI) will launch an IndiaPay credit card an Indian version of the China UnionPay card by the end of next year. Inspired by the success of the China UnionPay card, we will be launching a similar one in our country to promote the use of plastic money among Indians.

The credit card will be especially designed for the common people with low interest rates and risk reduction facilities, RBI executive director R B Barman said. Barman said the National Payment Council of India (NPCI) is working on the registration process of the card. The NPCI authorities would decide on the type of the card - whether it would be a smart card or something else.

The China UnionPay card was introduced in 2002. The card gives access to over 85,000 ATM counters of 14 major and other minor banks across the world. Besides, the card can function as regular MasterCard or Visa credit cards abroad.

RBI Fully Geared To Control Inflation, Says Reddy

Mumbai: Concerned over ballooning inflation, the Reserve Bank on Monday hinted at tighter monetary measures in its forthcoming credit policy, saying it was in "full readiness" for appropriate action to contain prices.

"Inflation is unacceptably high. We are very concerned and we are in full readiness to take appropriate action to contain inflation," Reserve Bank Governor Y V Reddy said, a month ahead of the credit policy, to be announced on April 29.

Inflation spiralled to 6.68 per cent, much beyond the RBI''s comfort level of five per cent, prompting Finance Minister P Chidambaram to stress that the government would take all measures, monetary, fiscal and supply side, to combat it. Attributing the sudden spurt in inflation to a surge increase in prices, mainly of food, fuel and metals, Reddy said that some inflationary pressures were expected when the central bank reviewed its monetary policy in January. "Inflation has (now) turned out to be well more than anticipated," Reddy said on the sidelines of a function in Mumbai.

RBI Keeps Rupee Low At The Cost Of Oil Sector

Bangalore: The Central Government indirectly helped to keep rupee realisations relatively high for the export community not just by enabling RBI sterilise dollar inflows through issue of special securities, but also paying higher subsidy to the oil sector.

The RBI’s currency intervention has adversely impacted the oil marketing companies which had to pay a higher price for the refined petroleum products as the crude prices, in rupee terms, had become more expensive than what would have been the case had there been no such intervention. A rupee appreciation would have partially offset the high international oil prices.

Dr Abheek Barua, Chief Economist at the HDFC Bank said, “Actually there is a transfer of subsidies from the oil sector to the export sector.”

The effort to hold the exchange rate, translated into higher issue of oil bonds to compensate for under recoveries in petroleum products sold to consumers. Outstanding oil bonds this year amounted to about Rs 62,000 crore. Interest liability on oil bonds this year is estimated at Rs 3,853 crore and for the next year it is estimated to rise by another 43 per cent.

Hidden subsidy

It may be recalled that the Finance Minister, P Chidambaram spoke of a hidden subsidy to the exporter community in the interest payments on the Market Stabilisation Scheme (MSS) bonds that the Government issued from time to time. This was done to facilitate RBI buy up the increased dollar inflows without causing an increase in the money supply in the economy that such intervention would otherwise have created.

According to the RBI data, outstanding MSS securities amounted to Rs 1.76 lakh crore. MSS securities included 91-day, 182-day, 364-day Treasury Bills and dated securities.

Interest costs

MSS securities are not treated as part of the Government’s borrowings. Interest payments on MSS though are serviced from the revenue receipts. Interest payments on MSS securities amounted to Rs 8,351.34 crore, almost 2.3 times the budgeted estimates for the current year. For the next year, the interest servicing on outstanding MSS securities is estimated at Rs 13,958.14 crore or a 67 per cent increase. In 2006-07, interest on MSS was only Rs 2,658 crore.

Says Dr Barua, “The interest costs are nothing but de facto export subsidies.” The Finance Minister admitted as much in the Budget speech.

During this financial year, the interventions helped contain the rupee’s appreciation to only about 12 per cent against the dollar. Issuance of dated securities under the MSS, according to the revised estimates for 2007-08, was Rs 1.45 lakh crore against the budget estimates of Rs 22,000 crore.

At least two of these securities issued had coupons of 11.30 and 12.25 per cent for amounts of Rs 25,000 crore and Rs 7,000 crore each, respectively. Both these securities mature in 2010.

Indian Economy Robust In Q3, Says RBI

The Reserve Bank of India (RBI) released the document ''Macroeconomic and Monetary Developments: Third Quarter Review 2007-08'' to serve as a backdrop to the Q3 review of the annual policy statement for 2007-08. According to the report, the Indian economy continued to exhibit robust growth during the second quarter (July-September) of 2007-08, though with some moderation. As per the estimates released by the Central Statistical Organisation (CSO) in August 2007, real GDP growth was 8.9 per cent during the second quarter of 2007-08 as compared with 10.2 per cent during the same period in 2006-07.

While agriculture and allied activities recorded higher growth during the first half of 2007-08 over the corresponding period of the previous year, the growth of industrial and services sectors was somewhat lower than that during the first half of the previous year. During April-November 2007, the index of industrial production (IIP) rose by 9.2 per cent as compared with the increase of 10.9 per cent recorded during the corresponding period of the previous year.

The manufacturing sector registered a growth of 9.8 per cent during April-November 2007 as compared with 11.8 per cent during April-August 2006. Also, the infrastructure sector recorded a growth of six per cent as compared with 8.9 per cent a year ago, with all the sectors exhibiting growth rates lower than a year ago. The services sector continued to record double-digit growth (10.5 per cent) in April-September 2007. Leading indicators of service sector activity for April-October 2007 show that growth rates in revenue earning freight traffic of the railways, commercial vehicles production, new cell phone connections, passengers handled by civil aviation at domestic terminals, cement and steel moderated even though over a high base.

SBI Mulls One-Man Branches To Attract Hnis

Mumbai: State Bank of India (SBI), in an attempt to attract a larger chunk of the mass affluent and high net worth individuals (HNIs), plans to establish one-man branches and financial service centres (FSCs) in urban areas. The bank seeks to set up 1,000 one-man branches in residential areas to meet the banking requires of these categories virtually at their doorstep and also establish sales outlets, or FSCs, at places like shopping malls and market centres.

Of SBI''s 90 million retail customer base, only about 3 per cent are from the mass affluent and HNI segments. These will operate as sales outfits offering personal banking products, credit cards, remittance facilities, investment advisory services, including mutual funds and insurance, to walk-in customers. The centres will be connected to a liabilities processing centre and a central loan processing centre. The bank is in negotiations with the Reserve Bank of India (RBI) to secure clearance for opening the outlets. The bank also plans to convert its existing loss-making branches in metro and urban areas into lean branches providing only routine banking transactions.