Wednesday, April 22, 2009
Policy statement is set in context of economic slump’
Policy statement is set in context of economic slump’
The Financial Express, April 22, 2009, Page 5
This morning, I had a meeting with the chiefs of major banks where we announced the annual policy of the Reserve Bank for 2009-10. The meeting also provided a valuable opportunity for the Reserve Bank and the commercial banks to understand and appreciate each others’ perspectives.
The annual policy statement for 2009-10 is set in the context of a deep global economic slump and financial market turmoil. Governments and central banks around the world have responded to the crisis through both conventional and unconventional fiscal and monetary measures. And there is unprecedented co-ordinated policy action globally.
The Crisis and India
Like all emerging economies, India too has been impacted by the crisis, and much more than was expected earlier. GDP growth has moderated reflecting lower industrial production, negative exports, deceleration in services activities, dented corporate margins and diminished business confidence. There are some comforting factors — well-functioning financial markets, robust rural demand, lower headline inflation and comfortable foreign exchange reserves — which buffered us from the worst impact of the crisis. The fiscal stimulus packages of the Government and monetary easing and regulatory action of the Reserve Bank have helped to arrest the moderation in growth and keep our financial markets functioning normally.
Monetary Policy Action
Consistent with the current assessment of macroeconomic and monetary conditions, the Reserve Bank has decided to:
* reduce the repo rate under the LAF by 25 basis points from 5.0% to 4.75% with immediate effect.
* reduce the reverse repo rate under the LAF by 25 basis points from 3.5% to 3.25% with immediate effect.
* keep the CRR unchanged at 5.0% of net demand and time liabilities (NDTL).
Reserve Bank’s Policy Thrust
The thrust of the Reserve Bank's policy stance since mid-September 2008 has been aimed at providing ample rupee liquidity, ensuring comfortable dollar liquidity and maintaining continued credit flow to productive sectors. Taken together, the policy measures of the Reserve Bank have ensured that the Indian financial markets continue to function in an orderly manner. These measures have augmented actual/potential liquidity in the financial system by over Rs.420,000 crore. This should assure financial markets that the Reserve Bank will continue to maintain comfortable liquidity.
Interest Rate Response from Banks
Banks have told us of the constraints they face in further downward adjustment of deposit and lending rates, and these are discussed in the policy statement. Some of the banks’ apprehensions are valid and some not. Within the policy rate adjustment already effected by the Reserve Bank, there is scope for banks to further reduce lending rates so as to ensure credit flow for all productive economic activity. We hope and expect that banks will play their part in the economic adjustment process by passing on the benefits of lower interest rates to their customers.
Government Borrowing
Government borrowing increased substantially in 2008-09. As you will note from the numbers in the policy statement, net borrowing by the Central Government in 2008-09 was nearly three times that in 2007-08. As per estimates in the interim budget, net borrowing in the current year, 2009-10, will also be at this elevated level. Even as the increase in borrowing was large and abrupt in the fourth quarter of 2008-09, we managed that in a non-disruptive manner through a combination of measures such as unwinding of the MSS securities, open market operations and monetary easing. Admittedly, yields had increased. However, it is important to reckon with the counterfactual. But for the offsetting liquidity easing done by the Reserve Bank, yields would have increased even more. We will manage the borrowing in 2009-10 in a similarly non-disruptive manner. An effort in this regard is the planned OMO purchases and MSS unwinding in the first half of 2009/10 that will add primary liquidity of about Rs.120,000 crore, the monetary impact of which is equivalent to CRR reduction by 3 percentage points.
Growth Outlook
Let me now turn to the growth prospects. In the January 2009 policy review, we projected growth for 2008-09 of 7.0% with a downward bias. The downside risks have since materialised, and GDP growth for 2008-09 is now projected to turn out to be in the range of 6.5-6.7%. Going forward, the fiscal and monetary stimulus measures initiated during 2008-09 coupled with lower commodity prices will cushion the downturn by stabilising domestic economic activity. On balance, with the assumption of a normal monsoon, for policy purpose real GDP growth for 2009-10 is placed at around 6.0%.
Inflation Outlook
Keeping in view the global trend in commodity prices and domestic demand-supply balance, we project WPI inflation at around 4.0% by end-March 2010. Headline WPI inflation decelerated sharply after August 2008 reflecting the fall in global commodity prices. CPI inflation continues to be at near double-digit level but is expected to moderate in the coming months. WPI inflation, however, is expected to be in the negative territory in the early part of 2009-10 which is only of statistical significance and is not a reflection of demand contraction as is the case in advanced economies.
Money Supply
Money supply (M3) growth for 2009-10 is placed at 17.0%. Consistent with this, the aggregate deposits of commercial banks are projected to grow by 18.0%. The growth in adjusted non-food credit, including investment in bonds/debentures/ shares of public sector undertakings and private corporate sector and CPs, is placed at 20.0%. As always, these numbers are indicative projections and not targets.
Challenges on the way forward
There are several immediate challenges facing the economy. These include: (a) supporting the drivers of aggregate demand to enable the economy to return to its high growth path; (b) boosting the flow of credit to all productive sectors of the economy; (c) managing the large government borrowing programme in 2009-10 in a non-disruptive manner; (d) restoring the fiscal consolidation process; (e) ensuring an orderly withdrawal of the large liquidity injected in the system since September 2008 by the Reserve Bank to support the economy's productive requirements; and (f) the continued challenge of preserving the stability of our financial system drawing from the lesson of the global crisis.
Finally, the overarching challenge is to ensure an interest rate environment that supports revival of investment demand. Since October 2008, as the inflation rate has decelerated and the policy rates have been cut, market interest rates have also come down. But the reduction in interest rates across the term structure and across markets has not been uniform. Let me therefore reiterate that there is scope for the overall interest rate structure to adjust downwards. Indeed, the further policy rate cuts effected as part of this policy should be a definitive signal for reducing lending rates.
Monetary Policy Stance
On the basis of this overall assessment, the stance of monetary policy in 2009-10 will broadly be as follows:
* Ensure a policy regime that will enable credit expansion at viable rates while preserving credit quality so as to support the return of the economy to a high growth path.
* Continuously monitor the global and domestic conditions and respond swiftly and effectively through policy adjustments as warranted so as to minimise the impact of adverse developments and reinforce the impact of positive developments.
* Maintain a monetary and interest rate regime supportive of price stability and financial stability taking into account the emerging lessons of the global financial crisis.
Developmental and Regulatory Issues
Let me now turn to development and regulatory issues. In tailoring these policies, we have been mindful of the lessons of the global financial crisis as they apply to India. The policy statement has a detailed listing and explanation. I will only highlight a few.
Our banking system remains inherently sound and the financial markets are functioning normally. In the wake of the global financial crisis, however, several initiatives have been taken in an unprecedented coordinated manner at the global level with a view to resolving the crisis and strengthening the international financial architecture. India has been a part of the various global initiatives. A comprehensive assessment of the Indian financial sector was undertaken by the Committee on Financial Sector Assessment which found India’s financial sector to be broadly sound and resilient, identified some concerns and made several recommendations. The Reserve Bank proposes to set up a Task Force with regard to the G-20 Working Groups; Working Group to implement the recommendations of the CFSA; and Financial Stability Unit in the Reserve Bank.
Policy measures relating to interest rate include constitution of a Working Group to review the present BPLR system to make credit pricing more transparent; and payment of interest on savings bank accounts on a daily product basis with effect from April 1, 2010.
Measures relating to financial markets include:
* Further liberalisation of the FCCBs buyback policy;
* Extension of the relaxation on the all-in-cost ceilings for ECBs up to December 31, 2009;
* Extension of the special refinance facility and term repo facility and increased limit for export credit refinance for banks up to March 31, 2010;
* Introduction of STRIPS to aid the development of a sovereign zero-coupon yield curve; and
* Revise the issuance structure of floating rate bonds, among others.
* Policy measures relating to credit delivery mechanism and banking services include:
* Issuing guidelines to banks on rehabilitation of sick SMEs;
* Phased introduction of capital to risk-weighted asset ratio (CRAR) for regional rural banks (RRBs);
* A non-disruptive roadmap to ensure that only banks with licence operate in the co-operative space by 2012; and
* Setting up banking facilities at commercially unviable centres in the North-Eastern region.
The major prudential measures include allowing scheduled commercial banks to set up offsite ATMs without prior approval subject to reporting, lay down the norms for capital adequacy treatment of exposures of banks to central counterparties, prescribe a minimum lock-in-period and minimum retention criteria for securitising the loans, increase the maximum distance criterion for business correspondent for deeper penetration of banking services.
In view of the current global financial market turmoil, it has also been decided to continue, for the time being, with the current policy and procedures governing the presence of foreign banks in India. The review proposed as part of the 2005 policy on the subject will be taken up after due consultation with all stakeholders once there is greater clarity regarding the stability of the global financial system and a shared understanding on the regulatory and supervisory architecture around the world.
The measures relating to institutional developments include:
* Permit eligible SCBs to issue all categories of pre-paid payment instruments;
* Permit eligible non-bank entities, including NBFCs, to issue semi-closed instruments;
* Permit extension of area of operation of Tier II urban co-operative banks (UCBs) in Grade I to the entire State of registration;
* Guidelines to UCBs on internal controls, risk management systems, ALM and disclosure norms;
* Apply capital charge for market risks in respect of large UCBs; and
* Defer the implementation of CRAR for NBFCs-ND-SI by one year.”
The Financial Express, April 22, 2009, Page 5
This morning, I had a meeting with the chiefs of major banks where we announced the annual policy of the Reserve Bank for 2009-10. The meeting also provided a valuable opportunity for the Reserve Bank and the commercial banks to understand and appreciate each others’ perspectives.
The annual policy statement for 2009-10 is set in the context of a deep global economic slump and financial market turmoil. Governments and central banks around the world have responded to the crisis through both conventional and unconventional fiscal and monetary measures. And there is unprecedented co-ordinated policy action globally.
The Crisis and India
Like all emerging economies, India too has been impacted by the crisis, and much more than was expected earlier. GDP growth has moderated reflecting lower industrial production, negative exports, deceleration in services activities, dented corporate margins and diminished business confidence. There are some comforting factors — well-functioning financial markets, robust rural demand, lower headline inflation and comfortable foreign exchange reserves — which buffered us from the worst impact of the crisis. The fiscal stimulus packages of the Government and monetary easing and regulatory action of the Reserve Bank have helped to arrest the moderation in growth and keep our financial markets functioning normally.
Monetary Policy Action
Consistent with the current assessment of macroeconomic and monetary conditions, the Reserve Bank has decided to:
* reduce the repo rate under the LAF by 25 basis points from 5.0% to 4.75% with immediate effect.
* reduce the reverse repo rate under the LAF by 25 basis points from 3.5% to 3.25% with immediate effect.
* keep the CRR unchanged at 5.0% of net demand and time liabilities (NDTL).
Reserve Bank’s Policy Thrust
The thrust of the Reserve Bank's policy stance since mid-September 2008 has been aimed at providing ample rupee liquidity, ensuring comfortable dollar liquidity and maintaining continued credit flow to productive sectors. Taken together, the policy measures of the Reserve Bank have ensured that the Indian financial markets continue to function in an orderly manner. These measures have augmented actual/potential liquidity in the financial system by over Rs.420,000 crore. This should assure financial markets that the Reserve Bank will continue to maintain comfortable liquidity.
Interest Rate Response from Banks
Banks have told us of the constraints they face in further downward adjustment of deposit and lending rates, and these are discussed in the policy statement. Some of the banks’ apprehensions are valid and some not. Within the policy rate adjustment already effected by the Reserve Bank, there is scope for banks to further reduce lending rates so as to ensure credit flow for all productive economic activity. We hope and expect that banks will play their part in the economic adjustment process by passing on the benefits of lower interest rates to their customers.
Government Borrowing
Government borrowing increased substantially in 2008-09. As you will note from the numbers in the policy statement, net borrowing by the Central Government in 2008-09 was nearly three times that in 2007-08. As per estimates in the interim budget, net borrowing in the current year, 2009-10, will also be at this elevated level. Even as the increase in borrowing was large and abrupt in the fourth quarter of 2008-09, we managed that in a non-disruptive manner through a combination of measures such as unwinding of the MSS securities, open market operations and monetary easing. Admittedly, yields had increased. However, it is important to reckon with the counterfactual. But for the offsetting liquidity easing done by the Reserve Bank, yields would have increased even more. We will manage the borrowing in 2009-10 in a similarly non-disruptive manner. An effort in this regard is the planned OMO purchases and MSS unwinding in the first half of 2009/10 that will add primary liquidity of about Rs.120,000 crore, the monetary impact of which is equivalent to CRR reduction by 3 percentage points.
Growth Outlook
Let me now turn to the growth prospects. In the January 2009 policy review, we projected growth for 2008-09 of 7.0% with a downward bias. The downside risks have since materialised, and GDP growth for 2008-09 is now projected to turn out to be in the range of 6.5-6.7%. Going forward, the fiscal and monetary stimulus measures initiated during 2008-09 coupled with lower commodity prices will cushion the downturn by stabilising domestic economic activity. On balance, with the assumption of a normal monsoon, for policy purpose real GDP growth for 2009-10 is placed at around 6.0%.
Inflation Outlook
Keeping in view the global trend in commodity prices and domestic demand-supply balance, we project WPI inflation at around 4.0% by end-March 2010. Headline WPI inflation decelerated sharply after August 2008 reflecting the fall in global commodity prices. CPI inflation continues to be at near double-digit level but is expected to moderate in the coming months. WPI inflation, however, is expected to be in the negative territory in the early part of 2009-10 which is only of statistical significance and is not a reflection of demand contraction as is the case in advanced economies.
Money Supply
Money supply (M3) growth for 2009-10 is placed at 17.0%. Consistent with this, the aggregate deposits of commercial banks are projected to grow by 18.0%. The growth in adjusted non-food credit, including investment in bonds/debentures/ shares of public sector undertakings and private corporate sector and CPs, is placed at 20.0%. As always, these numbers are indicative projections and not targets.
Challenges on the way forward
There are several immediate challenges facing the economy. These include: (a) supporting the drivers of aggregate demand to enable the economy to return to its high growth path; (b) boosting the flow of credit to all productive sectors of the economy; (c) managing the large government borrowing programme in 2009-10 in a non-disruptive manner; (d) restoring the fiscal consolidation process; (e) ensuring an orderly withdrawal of the large liquidity injected in the system since September 2008 by the Reserve Bank to support the economy's productive requirements; and (f) the continued challenge of preserving the stability of our financial system drawing from the lesson of the global crisis.
Finally, the overarching challenge is to ensure an interest rate environment that supports revival of investment demand. Since October 2008, as the inflation rate has decelerated and the policy rates have been cut, market interest rates have also come down. But the reduction in interest rates across the term structure and across markets has not been uniform. Let me therefore reiterate that there is scope for the overall interest rate structure to adjust downwards. Indeed, the further policy rate cuts effected as part of this policy should be a definitive signal for reducing lending rates.
Monetary Policy Stance
On the basis of this overall assessment, the stance of monetary policy in 2009-10 will broadly be as follows:
* Ensure a policy regime that will enable credit expansion at viable rates while preserving credit quality so as to support the return of the economy to a high growth path.
* Continuously monitor the global and domestic conditions and respond swiftly and effectively through policy adjustments as warranted so as to minimise the impact of adverse developments and reinforce the impact of positive developments.
* Maintain a monetary and interest rate regime supportive of price stability and financial stability taking into account the emerging lessons of the global financial crisis.
Developmental and Regulatory Issues
Let me now turn to development and regulatory issues. In tailoring these policies, we have been mindful of the lessons of the global financial crisis as they apply to India. The policy statement has a detailed listing and explanation. I will only highlight a few.
Our banking system remains inherently sound and the financial markets are functioning normally. In the wake of the global financial crisis, however, several initiatives have been taken in an unprecedented coordinated manner at the global level with a view to resolving the crisis and strengthening the international financial architecture. India has been a part of the various global initiatives. A comprehensive assessment of the Indian financial sector was undertaken by the Committee on Financial Sector Assessment which found India’s financial sector to be broadly sound and resilient, identified some concerns and made several recommendations. The Reserve Bank proposes to set up a Task Force with regard to the G-20 Working Groups; Working Group to implement the recommendations of the CFSA; and Financial Stability Unit in the Reserve Bank.
Policy measures relating to interest rate include constitution of a Working Group to review the present BPLR system to make credit pricing more transparent; and payment of interest on savings bank accounts on a daily product basis with effect from April 1, 2010.
Measures relating to financial markets include:
* Further liberalisation of the FCCBs buyback policy;
* Extension of the relaxation on the all-in-cost ceilings for ECBs up to December 31, 2009;
* Extension of the special refinance facility and term repo facility and increased limit for export credit refinance for banks up to March 31, 2010;
* Introduction of STRIPS to aid the development of a sovereign zero-coupon yield curve; and
* Revise the issuance structure of floating rate bonds, among others.
* Policy measures relating to credit delivery mechanism and banking services include:
* Issuing guidelines to banks on rehabilitation of sick SMEs;
* Phased introduction of capital to risk-weighted asset ratio (CRAR) for regional rural banks (RRBs);
* A non-disruptive roadmap to ensure that only banks with licence operate in the co-operative space by 2012; and
* Setting up banking facilities at commercially unviable centres in the North-Eastern region.
The major prudential measures include allowing scheduled commercial banks to set up offsite ATMs without prior approval subject to reporting, lay down the norms for capital adequacy treatment of exposures of banks to central counterparties, prescribe a minimum lock-in-period and minimum retention criteria for securitising the loans, increase the maximum distance criterion for business correspondent for deeper penetration of banking services.
In view of the current global financial market turmoil, it has also been decided to continue, for the time being, with the current policy and procedures governing the presence of foreign banks in India. The review proposed as part of the 2005 policy on the subject will be taken up after due consultation with all stakeholders once there is greater clarity regarding the stability of the global financial system and a shared understanding on the regulatory and supervisory architecture around the world.
The measures relating to institutional developments include:
* Permit eligible SCBs to issue all categories of pre-paid payment instruments;
* Permit eligible non-bank entities, including NBFCs, to issue semi-closed instruments;
* Permit extension of area of operation of Tier II urban co-operative banks (UCBs) in Grade I to the entire State of registration;
* Guidelines to UCBs on internal controls, risk management systems, ALM and disclosure norms;
* Apply capital charge for market risks in respect of large UCBs; and
* Defer the implementation of CRAR for NBFCs-ND-SI by one year.”
No rate cut: HDFC
No rate cut: HDFC
The Financial Express, April 22, 2009, Money & Funds, P II
Home loans lender HDFC has no plans to lower its interest rates as of now, its top executive said. "We have no plans to lower our interest rates as of now," HDFC's Chairman, Deepak Parekh, told reporters on the sidelines of a function here today.
He said that the GDP groth in FY 10 was likely to be around 6.605 per cent which willl be in line with 6 per cent pegged by the Reserve Bank. On inflation, Parekh said that the wholesale price index (WPI) was low whereas the consumer price index (CPI) was still high. “The aim should be to bring down CPI which is till on the higher side,” he said.
The Financial Express, April 22, 2009, Money & Funds, P II
Home loans lender HDFC has no plans to lower its interest rates as of now, its top executive said. "We have no plans to lower our interest rates as of now," HDFC's Chairman, Deepak Parekh, told reporters on the sidelines of a function here today.
He said that the GDP groth in FY 10 was likely to be around 6.605 per cent which willl be in line with 6 per cent pegged by the Reserve Bank. On inflation, Parekh said that the wholesale price index (WPI) was low whereas the consumer price index (CPI) was still high. “The aim should be to bring down CPI which is till on the higher side,” he said.
ICICI Bank cuts rates, others to follow
ICICI Bank cuts rates, others to follow
The Financial Express, April 22, 2009, Money & Funds, P II
Agencies, fe Bureau, Mumbai
The country's largest private sector lender ICICI Bank was the first to cut interest rates on Tuesday after the RBI lowered its short-term lending and borrowing rates, but housing loan major HDFC said it has no plans to cut the rates now. In fact, it was private sector banks which were reluctant to cut lending rates earlier when the RBI had eased money supply through a series of rate cuts.
ICICI Bank cut both lending and deposit rates by up to 50 basis points. Describing the RBI's stance as an "innovative and far-reaching policy," ICICI Bank's managing director & CEO, KV Kamath, said it would have a significant impact (on spurring economic growth).
HDFC's chairman Deepak Parekh said, "We have no plans to lower our interest rates as of now".
However, other bankers said they would slash lending rates in the coming days taking cues from RBI cutting key rates by 25 bps. “It (the RBI rate cuts) is a very clear-cut signal that interest rates should ease,” SBI chairman OP Bhatt said.
“As far as my bank (UCO Bank) is concerned, we are going to reduce our BPLR by 0.25%,” UCO Bank chairman and managing director SK Goel said after meeting with RBI governor D Subbarao.
The Kolkata-based bank will be holding its board meeting in the next 10-15 days and a decision on a rate cut would be taken then, he said.
Meanwhile, RBI governor in his customary press meet said, “Indeed, the further policy rate cuts effective as a part of this policy should be a definitive signal for reducing lending rates.” The governor noted that the reduction in interest rates by banks across the term structure and across markets has not been uniform. “Let me therefore reiterate that there is scope for the overall interest rate structure to adjust downwards.”
Canara Bank and Central Bank are planning to hold ALCO meeting in the coming days to review interest rate scenario post annual policy announcement. “We will take a view on interest rates in ALCO,” Canara Bank CMD AC Mahajan said. Acknowledging that banks did not respond swiftly to policy rate cut, RBI said the adjustment in market interest rates in response to changes in policy rates gets reflecte with some lag. However, transmission to the credit market is somewhat slow on account of several structural rigidities, it said.
RBI has reduced repo rate from 9% in October 2008 to 4.75% now, while it brought down reverse repo rate from 6% in October last year to 3.25% at present. In response, most of banks reduced the lending rate by 200 basis points in the same period.
ABN Amro interim country executive Madan Menon said rate cut would induce some more downward adjustment in banks' cost of funds and lending rates. “A 25 bps cut in the policy rates is along anticipated trends. We expect that RBI could now move gradually on the policy rates front, given that liquidity in the system is comfortable, overall monetary conditions are significantly easy and bank lending rates have trended lower.”
The Financial Express, April 22, 2009, Money & Funds, P II
Agencies, fe Bureau, Mumbai
The country's largest private sector lender ICICI Bank was the first to cut interest rates on Tuesday after the RBI lowered its short-term lending and borrowing rates, but housing loan major HDFC said it has no plans to cut the rates now. In fact, it was private sector banks which were reluctant to cut lending rates earlier when the RBI had eased money supply through a series of rate cuts.
ICICI Bank cut both lending and deposit rates by up to 50 basis points. Describing the RBI's stance as an "innovative and far-reaching policy," ICICI Bank's managing director & CEO, KV Kamath, said it would have a significant impact (on spurring economic growth).
HDFC's chairman Deepak Parekh said, "We have no plans to lower our interest rates as of now".
However, other bankers said they would slash lending rates in the coming days taking cues from RBI cutting key rates by 25 bps. “It (the RBI rate cuts) is a very clear-cut signal that interest rates should ease,” SBI chairman OP Bhatt said.
“As far as my bank (UCO Bank) is concerned, we are going to reduce our BPLR by 0.25%,” UCO Bank chairman and managing director SK Goel said after meeting with RBI governor D Subbarao.
The Kolkata-based bank will be holding its board meeting in the next 10-15 days and a decision on a rate cut would be taken then, he said.
Meanwhile, RBI governor in his customary press meet said, “Indeed, the further policy rate cuts effective as a part of this policy should be a definitive signal for reducing lending rates.” The governor noted that the reduction in interest rates by banks across the term structure and across markets has not been uniform. “Let me therefore reiterate that there is scope for the overall interest rate structure to adjust downwards.”
Canara Bank and Central Bank are planning to hold ALCO meeting in the coming days to review interest rate scenario post annual policy announcement. “We will take a view on interest rates in ALCO,” Canara Bank CMD AC Mahajan said. Acknowledging that banks did not respond swiftly to policy rate cut, RBI said the adjustment in market interest rates in response to changes in policy rates gets reflecte with some lag. However, transmission to the credit market is somewhat slow on account of several structural rigidities, it said.
RBI has reduced repo rate from 9% in October 2008 to 4.75% now, while it brought down reverse repo rate from 6% in October last year to 3.25% at present. In response, most of banks reduced the lending rate by 200 basis points in the same period.
ABN Amro interim country executive Madan Menon said rate cut would induce some more downward adjustment in banks' cost of funds and lending rates. “A 25 bps cut in the policy rates is along anticipated trends. We expect that RBI could now move gradually on the policy rates front, given that liquidity in the system is comfortable, overall monetary conditions are significantly easy and bank lending rates have trended lower.”
Public sector banks to cut rates soon
Public sector banks to cut rates soon
The Times of India, April 22, 2009, Page 24
Along with ICICI Bank, Yes Bank, also cut its PLR by 50 basis points shortly after after the RBI announcement. Public sector banks are also likely to cut their prime lending rates soon.
This is the seventh time the RBI has cut rates since the global financial turmoil erupted in September 2008. In this period, the central bank has reduced the repo rate from 9% to 4.75% and the reverse repo rate from 6% to 3.25%. Besides, the RBI also took a number of measures to infuse liquidity in the banking system. Subbarao said RBI has so far injected Rs 4,20,000 crore into the system since October 2008 and would continue to maintain comfortable liquidity.
Public sector banks like State Bank of India, Punjab National Bank, UCO Bank, Bank of Baroda, Canara Bank, Central Bank, Bank of Baroda, Indian Bank and Oriental Bank of Commerce, among others, said they were likely to cut interest rates. UCO Bank chairman SK Goel said his bank would cut the BPLR by 25 basis points.
SBI chairman O P Bhatt said SBI’s asset liability committee (ALCO) will soon meet to decide on the rate cut. SBI has already cut its BPLR by 1.5 percentage points since October to 12.25%. Similarly, chairmen of other banks also said their respective ALCOs would meet soon to decide on rate cuts. Cuts in lending rates will be accompanied by reduction in deposit rates. IDBI Bank’s CMD Yogesh Agarwal said the cut in policy rates by RBI was aimed at easing the liquidity situation, but the bank would watch the market conditions before revising its rate-structure.
Bankers raised apprehension over the huge government borrowing, which might push the demand of funds and so drive up lending rates. At the same time, on the cost of funds, bankers also pointed out their inability in cutting the deposits rates below the small savings rates, like post office deposits at 8%. Bankers said that unless the deposits rates are brought down, the lending rates could not be cut.
RBI governor Subbarao allayed any fear of crowding out of funds due to huge government borrowings. He said RBI was taking enough measures like purchasing of government securities from the market and unwinding of securities bought by government under market stabilization scheme
The Times of India, April 22, 2009, Page 24
Along with ICICI Bank, Yes Bank, also cut its PLR by 50 basis points shortly after after the RBI announcement. Public sector banks are also likely to cut their prime lending rates soon.
This is the seventh time the RBI has cut rates since the global financial turmoil erupted in September 2008. In this period, the central bank has reduced the repo rate from 9% to 4.75% and the reverse repo rate from 6% to 3.25%. Besides, the RBI also took a number of measures to infuse liquidity in the banking system. Subbarao said RBI has so far injected Rs 4,20,000 crore into the system since October 2008 and would continue to maintain comfortable liquidity.
Public sector banks like State Bank of India, Punjab National Bank, UCO Bank, Bank of Baroda, Canara Bank, Central Bank, Bank of Baroda, Indian Bank and Oriental Bank of Commerce, among others, said they were likely to cut interest rates. UCO Bank chairman SK Goel said his bank would cut the BPLR by 25 basis points.
SBI chairman O P Bhatt said SBI’s asset liability committee (ALCO) will soon meet to decide on the rate cut. SBI has already cut its BPLR by 1.5 percentage points since October to 12.25%. Similarly, chairmen of other banks also said their respective ALCOs would meet soon to decide on rate cuts. Cuts in lending rates will be accompanied by reduction in deposit rates. IDBI Bank’s CMD Yogesh Agarwal said the cut in policy rates by RBI was aimed at easing the liquidity situation, but the bank would watch the market conditions before revising its rate-structure.
Bankers raised apprehension over the huge government borrowing, which might push the demand of funds and so drive up lending rates. At the same time, on the cost of funds, bankers also pointed out their inability in cutting the deposits rates below the small savings rates, like post office deposits at 8%. Bankers said that unless the deposits rates are brought down, the lending rates could not be cut.
RBI governor Subbarao allayed any fear of crowding out of funds due to huge government borrowings. He said RBI was taking enough measures like purchasing of government securities from the market and unwinding of securities bought by government under market stabilization scheme
Meltdown to create new avenues for IT’
Meltdown to create new avenues for IT’
The Times of India, April 22, 2009, Page 24
TIMES NEWS NETWORK, Chennai
The global meltdown might have slowed the growth of the Indian IT industry, but Nasscom predicts that several changes in economic, business, social megatrends will create new opportunities for the sector in 12 years time.
These new opportunities will lead to export revenues growing to the tune of $175 billion in 2020 from a target of $50 billion by 2010. The domestic IT market could also see a four fold increase in revenues to $50 billion by 2020 from $12 billion in 2008, a report by Nasscom-McKinsey & Co predicted.
By 2020, India will emerge as a top three global innovation hub for clinical research, mobile applications and energy efficiency/climate change solutions, leading to transformational opportunities for the technology and business services industry, the report says. “In addition, harnessing information communication technology-based solutions will help drive inclusive growth by uplifting 30 million citizens each year.”
About 80% of the incremental revenue growth by 2020 will be driven by opportunities outside of the current core markets, verticals and customer segments and the industry needs to redefine its value proposition to capture these, Nasscom president Som Mittal said.
Despite current slowdown, the core markets for banking, financial service, insurance, telecom, retail, pharma and travel in the US, EU and Japan will expand upto 1.5 times and reach an addressable market size of $700-$750 billion by 2020 from $500 billion. Untapped customer segments like public sector, healthcare, media and utilities could also contribute about 70% of the opportunity estimated at $190-$220 billion by 2020.
Small businesses alone will contribute $250 billion of the addressable opportunity.
The Times of India, April 22, 2009, Page 24
TIMES NEWS NETWORK, Chennai
The global meltdown might have slowed the growth of the Indian IT industry, but Nasscom predicts that several changes in economic, business, social megatrends will create new opportunities for the sector in 12 years time.
These new opportunities will lead to export revenues growing to the tune of $175 billion in 2020 from a target of $50 billion by 2010. The domestic IT market could also see a four fold increase in revenues to $50 billion by 2020 from $12 billion in 2008, a report by Nasscom-McKinsey & Co predicted.
By 2020, India will emerge as a top three global innovation hub for clinical research, mobile applications and energy efficiency/climate change solutions, leading to transformational opportunities for the technology and business services industry, the report says. “In addition, harnessing information communication technology-based solutions will help drive inclusive growth by uplifting 30 million citizens each year.”
About 80% of the incremental revenue growth by 2020 will be driven by opportunities outside of the current core markets, verticals and customer segments and the industry needs to redefine its value proposition to capture these, Nasscom president Som Mittal said.
Despite current slowdown, the core markets for banking, financial service, insurance, telecom, retail, pharma and travel in the US, EU and Japan will expand upto 1.5 times and reach an addressable market size of $700-$750 billion by 2020 from $500 billion. Untapped customer segments like public sector, healthcare, media and utilities could also contribute about 70% of the opportunity estimated at $190-$220 billion by 2020.
Small businesses alone will contribute $250 billion of the addressable opportunity.
Tuesday, April 21, 2009
RBI indicates status quo on rates
RBI indicates status quo on rates
The Financial Express, April 21, 2009, Page 1
Economy Bureau, Mumbai
The Reserve Bank of India on Monday indicated that although growth prospects remained grim, it might prefer not to cut policy rates further at this time. It said earlier rate cuts and higher government spending since October had already made a positive impact on economic growth.
“The fiscal stimulus packages of the government and monetary easing by RBI will arrest the moderation in growth and revive consumption and investment demand,” the central bank stated in its Macroeconomic & Monetary Developments 2008-09 review, which was released on the eve of its annual credit and monetary policy announcement.
Looking back over the last fiscal, the economy probably expanded 6.6%, less than the 6.8% forecast last December, according to the median compiled by the RBI from the forecasts of 14 agencies, including the World Bank and Citigroup Inc. The seventh round of the professional forecasters survey was conducted last month.
RBI said it still had the option to reduce rates to support growth as it expects inflation to “remain at a low level through the greater part of 2009-10” because of higher farm output and low international commodity prices. It also said commercial banks had sufficient room to lower borrowing costs further.
RBI pointed out that major drivers of growth in India are moderating and various surveys of economic activity point towards less-than-optimistic sentiment for the economy in coming months.
According to its outlook of manufacturing companies in the private sector, business expectations indices based on the assessment for January-March 2009 and expectations for April-June 2009 declined sharply by 20.7% and 13.9%, respectively, over the previous quarters. A similar trend was observed in these indices when compared with the corresponding quarters of the previous year.
RBI said consumer price inflation remained high, with recent evidence of only very modest moderation, adding that the transmission process of lower inflation at the wholesale level to inflation at the retail level had emerged an important issue in the conduct of monetary policy.
“Various measures of consumer price inflation, though starting to decline, still remained high in the range of 9.6-10.8% during January-February 2009, compared with 5.2-6.4% in February 2008,” it said.
The central bank said weather forecasts indicated that prospects for the farm sector remained bright, and this would continue to support rural demand. Satisfactory agricultural output, along with low international commodity prices, would help keep inflationary pressures low for most of 2009-10, it said.
The Financial Express, April 21, 2009, Page 1
Economy Bureau, Mumbai
The Reserve Bank of India on Monday indicated that although growth prospects remained grim, it might prefer not to cut policy rates further at this time. It said earlier rate cuts and higher government spending since October had already made a positive impact on economic growth.
“The fiscal stimulus packages of the government and monetary easing by RBI will arrest the moderation in growth and revive consumption and investment demand,” the central bank stated in its Macroeconomic & Monetary Developments 2008-09 review, which was released on the eve of its annual credit and monetary policy announcement.
Looking back over the last fiscal, the economy probably expanded 6.6%, less than the 6.8% forecast last December, according to the median compiled by the RBI from the forecasts of 14 agencies, including the World Bank and Citigroup Inc. The seventh round of the professional forecasters survey was conducted last month.
RBI said it still had the option to reduce rates to support growth as it expects inflation to “remain at a low level through the greater part of 2009-10” because of higher farm output and low international commodity prices. It also said commercial banks had sufficient room to lower borrowing costs further.
RBI pointed out that major drivers of growth in India are moderating and various surveys of economic activity point towards less-than-optimistic sentiment for the economy in coming months.
According to its outlook of manufacturing companies in the private sector, business expectations indices based on the assessment for January-March 2009 and expectations for April-June 2009 declined sharply by 20.7% and 13.9%, respectively, over the previous quarters. A similar trend was observed in these indices when compared with the corresponding quarters of the previous year.
RBI said consumer price inflation remained high, with recent evidence of only very modest moderation, adding that the transmission process of lower inflation at the wholesale level to inflation at the retail level had emerged an important issue in the conduct of monetary policy.
“Various measures of consumer price inflation, though starting to decline, still remained high in the range of 9.6-10.8% during January-February 2009, compared with 5.2-6.4% in February 2008,” it said.
The central bank said weather forecasts indicated that prospects for the farm sector remained bright, and this would continue to support rural demand. Satisfactory agricultural output, along with low international commodity prices, would help keep inflationary pressures low for most of 2009-10, it said.
Economy to grow at 5.7% in FY 10, say RBI survey
Economy to grow at 5.7% in FY 10, say RBI survey
Business Standard, April 21, 2009, Money & Markets, Section II, Page 1
Manufacturing sector to be hit by slowdown for some more time, it says.
A survey conducted by the Reserve Bank of India (RBI) has estimated that the Indian economy would grow at less than 6 per cent during the current financial year, the slowest expansion since 2002-03.
The median forecast of professional forecasters' survey estimated that the economy would grow by 5.7 per cent during the current financial year and also revised the growth projections for 2008-09.
According to the Central Statistical Organisation's advance estimates, GDP is projected to grow by 7.1 per cent in 2008-09. This would be the slowest growth since 2002-03, when the economy grew by 4 per cent. For three successive years up to 2007-08, GDP rose at a rate of over 9 per cent.
Agriculture, which is projected to grow at 3 per cent during the current financial year, provides a silver lining of sorts with services and industrial growth expected to moderate.
During the current financial year, imports and exports are projected to contract by 4 per cent and 8.4 per cent respectively. This indicates that the manufacturing sector would continue to feel the impact of the global slowdown for some more time.
The only good news is that there are signs of the economy bottoming out. During April-June, the GDP is expected to rise by 5.3 per cent, before improving to 5.6 per cent in the second quarter. The Indian economy is expected to grow at 6.2 per cent in the third and 6.5 per cent in the fourth quarters. During the third quarter of 2008-09, the Indian economy grew by 5.3 per cent as against 7.7 per cent in the first half.
While RBI expects inflationary pressure to remain low during the current financial year due to low commodity prices globally, it also points out that high food prices have kept consumer price inflation at elevated levels. During January-February, inflation based on consumer price indices has hovered around 9.6-10.8 per cent as against 7.3-8.8 per cent in June 2008.
Pointing to more pain for companies, the forecasters' survey estimated the growth in corporate profit to fall to single-digit rates.
Data, barring savings and capital formation, pertains to growth rateEarlier estimates based on survey conducted for quarter-ended Dec 2008Latest estimates based on survey for quarter-ended March 2009
In addition, the quarter-ahead expectations survey on industrial performance conducted by RBI projected all-round deterioration during April-June 2009. Only 11.2 per cent of the respondents said that the overall business situation would be better and 8.4 per cent said the financial situation would be better.
"In sum, the Indian economy has experienced some loss of growth momentum with major drivers of growth witnessing moderation," RBI said in its pre-monetary policy assessment today.
While savings and investment rates are expected to decline during 2008-09, RBI said the fiscal stimulus packages announced by it and the government would help arrest the moderation and revive consumption and investment with some lag. Besides, it said that the balance of payment position remained sustainable in the context of the present level of foreign exchange reserves and external debt.
Among the positives, the central bank, which is due to announce the annual policy statement for 2009-10 tomorrow, said that foreign exchange reserves continued to remain at comfortable levels, and would ensure stability, despite falling by $59 billion over the last 12 months.
Business Standard, April 21, 2009, Money & Markets, Section II, Page 1
Manufacturing sector to be hit by slowdown for some more time, it says.
A survey conducted by the Reserve Bank of India (RBI) has estimated that the Indian economy would grow at less than 6 per cent during the current financial year, the slowest expansion since 2002-03.
The median forecast of professional forecasters' survey estimated that the economy would grow by 5.7 per cent during the current financial year and also revised the growth projections for 2008-09.
According to the Central Statistical Organisation's advance estimates, GDP is projected to grow by 7.1 per cent in 2008-09. This would be the slowest growth since 2002-03, when the economy grew by 4 per cent. For three successive years up to 2007-08, GDP rose at a rate of over 9 per cent.
Agriculture, which is projected to grow at 3 per cent during the current financial year, provides a silver lining of sorts with services and industrial growth expected to moderate.
During the current financial year, imports and exports are projected to contract by 4 per cent and 8.4 per cent respectively. This indicates that the manufacturing sector would continue to feel the impact of the global slowdown for some more time.
The only good news is that there are signs of the economy bottoming out. During April-June, the GDP is expected to rise by 5.3 per cent, before improving to 5.6 per cent in the second quarter. The Indian economy is expected to grow at 6.2 per cent in the third and 6.5 per cent in the fourth quarters. During the third quarter of 2008-09, the Indian economy grew by 5.3 per cent as against 7.7 per cent in the first half.
While RBI expects inflationary pressure to remain low during the current financial year due to low commodity prices globally, it also points out that high food prices have kept consumer price inflation at elevated levels. During January-February, inflation based on consumer price indices has hovered around 9.6-10.8 per cent as against 7.3-8.8 per cent in June 2008.
Pointing to more pain for companies, the forecasters' survey estimated the growth in corporate profit to fall to single-digit rates.
Data, barring savings and capital formation, pertains to growth rateEarlier estimates based on survey conducted for quarter-ended Dec 2008Latest estimates based on survey for quarter-ended March 2009
In addition, the quarter-ahead expectations survey on industrial performance conducted by RBI projected all-round deterioration during April-June 2009. Only 11.2 per cent of the respondents said that the overall business situation would be better and 8.4 per cent said the financial situation would be better.
"In sum, the Indian economy has experienced some loss of growth momentum with major drivers of growth witnessing moderation," RBI said in its pre-monetary policy assessment today.
While savings and investment rates are expected to decline during 2008-09, RBI said the fiscal stimulus packages announced by it and the government would help arrest the moderation and revive consumption and investment with some lag. Besides, it said that the balance of payment position remained sustainable in the context of the present level of foreign exchange reserves and external debt.
Among the positives, the central bank, which is due to announce the annual policy statement for 2009-10 tomorrow, said that foreign exchange reserves continued to remain at comfortable levels, and would ensure stability, despite falling by $59 billion over the last 12 months.
RBI survey lowers GDP growth forecast to 5.7%
RBI survey lowers GDP growth forecast to 5.7%
The Hindu Business Line, April 21, 2009, Page 6
Overall sentiment for all industries, except textiles, positive.
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Personal loans grew at just 8.5 per cent in the last one year compared with 13 per cent growth registered in the previous year.
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Our Bureau, Mumbai
The median forecast of real GDP growth, according to the Reserve Bank of India’s latest professional forecasters’ survey, for 2009-2010 has been revised downwards to 5.7 per cent from 6 per cent.
The central bank, in its report on the Macroeconomic and Monetary Developments in 2008-2009, said that the various surveys of economic activity point towards prevalence of less-than-optimistic sentiment for the outlook of the economy in the coming months.
Between the sixth round survey conducted in December 2008 and seventh round survey in March 2009, median forecast of real GDP growth for 2008-09 was revised downwards to 6.6 per cent from 6.8 per cent.
According to the report, for the April-June 2009 quarter, the overall net sentiment for all industries, except textiles, is positive. Moderate growth is expected across the various companies in the first quarter. However, the expectations are less optimistic for smaller companies compared with their bigger counterparts.
Inflation
On the inflation front, the report underscored the fact that unlike the wholesale price index based inflation, consumer price index based inflation in India remains high, with recent evidence of very slight moderation. “The transmission process of lower inflation at the wholesale level to inflation at the retail level has emerged as an important issue in the conduct of RBI’s monetary policy,” the report said.
The WPI-based inflation eased to 0.18 per cent for the week ended April 4 from 0.26 per cent for the previous week. Various measures of consumer price inflation, though started declining, still remained high in the range of 9.6-10.8 per cent during January/ February 2009.
The higher level of consumer price inflation (CPI) as compared with WPI inflation , in recent months, could be attributed to higher prices of food articles, which have higher weight in CPI.
Scheduled commercial banks (SCBs’) investment in statutory liquidity ratio (SLR) securities as a per cent of their net demand and time liabilities (NDTL) increased at end-March 2009 to 28.1 per cent, from 27.8 per cent a year ago.
However, adjusted for Liquidity Adjustment Facility collateral securities on an outstanding basis, SCBs holding of SLR securities amounted to Rs 11,10,156 crore or 26.7 per cent of NDTL at end-March 2009 – implying an excess of Rs 1,13,817 crore or 2.7 per cent of NDTL over the prescribed SLR of 24 per cent of NDTL.
The lower expansion in credit relative to the expansion in deposits resulted in a decline in the incremental credit-deposit ratio (y-o-y) of SCBs to 64.4 per cent at March-end 2009 from 73.6 per cent a year ago.
Personal loans
Our Chennai Bureau reports: The latest confirmation of a slowdown in the personal loans segment comes from the Statement on Macroeconomic and Monetary Developments put out by the Reserve Bank of India. Personal loans (inclusive of housing, credit cards, educational loans, consumer durable loans etc.) at Rs 5,55,392 crore account for about 22 per cent of the total loans outstanding as of end February 2009. Personal loans grew at just 8.5 per cent in the last one year compared with 13 per cent growth registered in the previous year.
Loans for housing, which constitute about half the personal loan segment, were at Rs 272,376 crore. They grew at just 7.5 per cent last year compared with 13 per cent in the previous year (2007-08) and 26 per cent in the year 2006-07. Credit card outstandings also grew at a mere 8 per cent compared to about 51 per cent in 2007-08 and 46 per cent in 2006-07.
Despite oft-repeated complaints that the real estate sector was credit starved, statistics provided by the RBI show that real-estate loans grew 61.4 per cent last year to Rs 9,0765 crore compared with a 27 per cent growth in 2007-08.
Similarly, loans to NBFCs also grew by 42 per cent during the last year to Rs 90,521 crore.
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