by admin | May 25, 2021 | Banking, Corporate, Corporate finance, Corporate Governance, Economy, News
By Biswajit Choudhury,
New Delhi : The year leading up to the 2019 general elections was defined by a slowdown in investment, slackening growth, falling GST revenues, the biggest bank fraud and a credit crunch that provoked the most significant crisis in government-RBI relations.
It was topped up by the abrupt resignation of Urjit Patel as the RBI Governor, a rare phenomenon in the banking world. He was immediately replaced by former Economic Affairs Secretary Shaktikanta Das the man who was the vocal face during demonetisation and seen as a ‘yes’ man of the government.
India, meanwhile, continued to be the fastest growing big economy during 2018 with its gross domestic product (GDP) rising at above 7 per cent, after having slipped to 6.7 per cent in the previous financial year, mainly on account of the impact of demonetisation.
Even as it is projected to overtake China by GDP in the coming year, India jumped 23 spots in the World Bank’s Ease of Doing Business rankings to 77th place, continuing its impressive climb on this score for the third year running.
The pace of the country’s GDP growth slowed substantially during the second quarter of the current fiscal to 7.1 per cent, from 8.2 per cent in the previous quarter, mainly on the back of a drop in manufacturing, agriculture and mining. By criteria of gross value added (GVA), which includes taxes and excludes subsidies, growth fell to 6.9 per cent from 8 per cent during the April-June period.
On the inflation front, lower food prices kept headline inflation down, which touched a 13-month low of 3.3 per cent in October, and fell further to 2.3 per cent last month. Core inflation, however, continued to remain elevated.
Following the release of the GDP numbers, US agency Fitch Ratings lowered India’s growth forecast for the fiscal to 7.2 per cent, from an earlier projection of 7.8 per cent rise, “on weaker-than-expected momentum in the data, higher financing costs and reduced credit availability.”
The year witnessed the biggest fraud in Indian banking history with the Rs 14,000 crore scam on state-run Punjab National Bank (PNB) committed over a number of years and reported in February. The fraud was committed from 2011 till 2017 by illegally issuing letters of undertaking and rolling over foreign letters of credit to diamantaire Nirav Modi and his uncle Mehul Choksi from PNB’s Brady House branch in Mumbai.
Both are currently absconding and Interpol has issued red corner notices against them.
Twin storms hit the country in September — rising fuel prices that climbed new highs daily and a falling rupee that spiralled down to new lows against the US dollar before recovering somewhat towards the end of the month.
The year’s global protectionist measures unfolding through the US-China trade war, along with high crude oil prices, put the rupee on a downward spiral, dragging it down to a record low of 72.98 against the US dollar on September 18.
According to analysts, concerns over a rise in inflation rate, growing protectionism in global trade and an outflow of foreign funds from the country’s equity markets have had an adverse impact on the Indian currency. It fell nearly 15 per cent since the start of the year to become Asia’s worst-performing currency.
On the other hand, transport fuel prices in the country began going up almost daily since August 1, incessantly recording new highs across the country, even as the UK Brent crude oil climbed to $86 per barrel. A weak rupee and high excise duty added to the heady mix that made for high petrol and diesel prices in the country before beginning to fall from late October in tandem with global crude prices.
“The widening of the current account deficit amidst tighter global financing conditions should put downward pressure on the currency, and we forecast the rupee to weaken to 75 against the dollar by end-2019,” Fitch said.
The defining moment, however, came in December with the resignation of the RBI Governor nine months prematurely and the first such instance since Independence, which prompted Patel’s predecessor Raghuram Rajan to say that it should be a cause of concern for all Indians.
The historic tensions in government-central bank relations were re-ignited in October when, in a public lecture, RBI Deputy Governor Viral Acharya talked about the independence of the Reserve Bank, arguing that any compromise could be “potentially catastrophic” for the economy.
The government responded with the Finance Ministry seeking discussions with the central bank under the never-used-before Section 7 of the RBI Act which empowers the government to issue directions to the RBI Governor, who then summoned a meeting of the bank board.
Central to the issue was the government’s demand that the RBI hand over its surplus reserves by making changes to the “economic capital framework”. Analysts noted that the government’s demand came in the face of a huge fiscal deficit and the need to boost the economy in an election year.
Prime Minister Narendra Modi met with Governor Patel before the board meeting and what emerged on November 19 was seen as settling the debate on the central bank’s autonomy and clearly establishing the government as a stakeholder in policy making.
The current liquidity crunch, particularly among non-banking finance companies, follows a series of defaults in late October by the privately-run IL&FS.
In hindsight, the words of Sudipto Mundle on the Board of Governors of the National Institute of Public Finance and Policy, after the November board meeting proved prophetic.
“The RBI-government fight has been pushed down, abated for now and postponed, but the NPAs issue continues to remain,” he said.
(Biswajit Choudhury can be reached at biswajit.c@ians.in)
—IANS
by admin | May 25, 2021 | News, Politics
(Photo Courtesy: Reuters/ Danish Siddiqui)
Mumbai : Reserve Bank of India (RBI) Governor Urjit Patel resigned on Monday with immediate effect, citing “personal reasons”, setting of a major crisis in India’s politico-economic sphere, even as his various predecessors hinted that the move was rooted in the recent controversy involving the government and the central bank.
Patel’s resignation comes in the backdrop of the ongoing tiff between the government and the central bank over the liquidity and credit crunch in the economy that provoked an extraordinary meeting of the RBI board on November 19.
“On account of personal reasons, I have decided to step down from my current position effective immediately,” Patel said in a brief statement released by the RBI.
Patel had taken charge as Governor on September 4, 2016, for a three-year term, following Raghuram Rajan’s decision not to seek a second term which had almost become the norm with earlier Governors.
The historic tensions in government-central bank relations were reignited in October when, in a public lecture, RBI Deputy Governor Viral Acharya talked about the independence of the Reserve Bank, arguing that any compromise could be “potentially catastrophic” for the economy.
The government responded with the Finance Ministry seeking discussions with the central bank under the never-used-before Section 7 of the RBI Act which empowers the government to issue directions to the RBI Governor, who then summoned a meeting of the bank board.
The government’s differences with the RBI centres on four issues – it wanted liquidity support to head off any risk of a credit freeze, a relaxation in capital
requirements for lenders, relaxing the prompt corrective action (PCA) rules for banks struggling with accumulated non-performing assets (NPAs or bad loans) and support for micro, small and medium enterprises.
Central to the liquidity issue was the government’s demand that the RBI hand over its surplus reserves by amending its “economic capital framework”. Analysts noted that the government’s demand came in the face of a huge fiscal deficit and the need to boost the economy in an election year.
The RBI’s central board has 18 members, which includes the Governor and his four deputies as full-time official directors, while the rest have been nominated by the government, including the Economic Affairs and Financial Services Secretaries.
Prime Minister Narendra Modi met with Patel before the board meeting and what emerged on November 19 was seen as settling the debate on the central bank’s autonomy and clearly establishing the government as a stakeholder in policy making.
On the issue of reserves, the RBI board decided to form an expert committee to examine its economic capital framework, which will decide the amount of reserves it can maintain, handing over the balance to the government.
On the matter of relaxing the PCA norms for banks with bad loans, it decided that the issue will be examined by the RBI’s Board for Financial Supervision.
Eleven of the 21 state-run banks are under the PCA framework, while NPAs accumulated in the Indian banking system have touched a staggering Rs 12 lakh crore.
“The RBI-government fight has been pushed down, abated for now and postponed, but the NPAs issue continues to remain,” Sudipto Mundle on the Board of Governors of the National Institute of Public Finance and Policy had said following the RBI board meeting.
Describing Patel’s resignation as a statement of protest, former RBI Governor Raghuram Rajan said the government needs to understand what prompted the exit.
“It’s probably only the second resignation in RBI’s history, may be the first explicit resignation, and therefore we have to look at the circumstances that have led to it. It’s a statement of dissent and the government has to be very careful in dealing with it…so that the autonomy of the institution as well as the credibility is preserved,” Rajan told a news channel.
He said the act of resignation is the “ultimate weapon” in a government appointee’s portfolio and they do not exercise it lightly.
“To that extent we must look at this decision and understand why Dr Patel, who was appointed by this government, essentially exercised this particular option,” he added.
Another former RBI Governor, C. Rangarajan, worried about the fallout of Patel’s quitting on the market.
“It is saddening since the resignation of RBI Governor will have its impact on the financial market. Though he (Patel) has cited as personal reasons for quitting, obviously there must have been some other reasons for his resignation,” Rangarajan said.
Congress President Rahul Gandhi said Patel’s quitting is a sign that the government is getting increasingl desperate.
“The government is taking measures that are dangerous for our country. The RBI Governor has resigned because he is protecting the institution of the RBI and he is not able to function. Taking away the reserves from the RBI to save your skin is an act that is against this nation,” he said.
“I am very-very proud that people in all walks of life and all institutions are standing up. We are not going to tolerate what is happening in the CBI, what is happening in the RBI and what is happening to every institution in this country, and all of us are saying this in one voice,” he added.
Asked about the government-RBI tiff, former Chief Economic Advisor Arvind Subramanian told reporters here on Saturday that the central bank’s autonomy must be protected because the country will benefit from strong institutions.
“I have myself advocated that RBI should play a pro-active role, but its surplus funds should not go towards routine financing of spending and deficit financing — that would amount to raiding the RBI,” he added.
On the RBI board, with a majority of government nominees, the former CEA said: “I think that part of maintaining a real autonomy is not to politicise the board. The board should not be politicised. Not only it must not be done, it must not be seen to be done either.”
—IANS
by admin | May 25, 2021 | News, Politics
Mumbai : The Shiv Sena pounced on the Bharatiya Janata Party (BJP) on Saturday, seeking to know “what action the (current) Finance Minister Piyush Goyal has taken against the RBI governor and chiefs of banks” which have been defrauded by big industrialists who have fled the country.
“How many bank chairmen who gave fraudulent loans have been sent to jail? Even the BJP President Amit Shah is the Director of Ahmedabad District Cooperative Bank… It collected Rs 745.59 crore of spiked (Rs 500 – Rs 1,000) notes within five days after demonetisation,” the Sena asked.
It said that a Gujarat cabinet minister Jayesh V. Radadia is a Chairman (of Rajkot DCB), which also secured the second highest amount in the country after ADCB – Rs 693.19 crore deposits of the old currency notes.
“How could so much money be deposited in just one (ADCB) bank? This is a serious issue and must be probed in depth,” the Sena said in sharp edits in the party mouthpieces ‘Saamana’ and ‘Dopahar Ka Saamana’.
Accusing Goyal of not viewing the issue with the seriousness it deserves, the BJP’s ally said that there was discrimination among the cooperative banks and different sets of rules were applied while dealing with various DCCBs in the country.
The Maharashtra DCCBs were debarred from exchanging/accepting the old notes, which was subsequently withdrawn, but it served to hit the banks’ economic position very badly, the Sena pointed out.
“For instance, the Nashik DCB’s deposits of Rs 341 crore was declared asuspicious’ and frozen in the bank. Other DCCBs also faced similar issues at that timea Demonetization triggered massive chaos in all sectors of the economy,” the Sena edit said.
“The country is today reeling under the impact of that demonetisation… The Reserve Bank of India Governor (Urjit Patel) is the biggest culprit for this mess and he should be prosecuted for it,” the Sena demanded.
Recalling the former RBI Governor Raghuram Rajan’s observations on the issue, the Sena reiterated that “the country has paid a heavy price for demonetisation”, the unorganised sector is in complete disarray, unemployment has increased and many others lost their jobs.
The ruling ally reminded how the country was told that “terrorism would end in Jammu and Kashmir after demonetisation, but in reality, the very next day after the Prime Minister Narendra Modi’s announcement on November 8, 2016, bundles of fake Rs 2,000 currencies, newly introduced, were found in that state.”
The Sena said the country is experiencing an economic mess which is increasing, and even the government’s financial advisor Arvind Subramaniam has quit and left the country.
“Amidst all this, the government is displaying its power to the public sector Bank Of Maharashtra (whose top officials including the CMD and ED were arrested this week)a This is cheating since the big fish have already absconded. The BoM officials and the builder D.S. Kulkarni (an accused in the case) have been caught and will not go anywhere… Congratulations for your tough action,” the Sena added.
—IANS
by admin | May 25, 2021 | Banking, Corporate, Corporate Governance, News
(Photo Courtesy: Reuters/ Danish Siddiqui)
By Ira Dugal
Urijit Patel looks to take Raghuram Rajan’s inflation fighting agenda forward and not sway from the RBI’s crusade against bad loans in the banking sector
Mumbai: When Urjit Patel takes over as the 24th governor of the Reserve Bank of India (RBI) next month, it may feel like a case of “the more things change, the more they stay the same” at the central bank.
Patel’s choice as the successor to Raghuram Rajan is a vote for continuity and that is what markets and bankers are expecting as the new governor takes charge.
The continuity will come in terms of taking Rajan’s inflation fighting agenda forward and not swaying from the regulator’s crusade against bad loans in the banking sector.
Patel, in fact, is the architect of the RBI’s new monetary policy framework. In January 2014, a committee headed by him had suggested crucial changes to how the central bank approaches monetary policy. It suggested that the central bank use consumer price inflation as the nominal anchor and also mooted the idea of a flexible inflation targeting framework. Both these changes have now been institutionalised with a 4% (+/-2%) inflation target being put in place.
Get the MPC functioning
The other big change that the Patel committee recommended is the setting up of a monetary policy committee (MPC) which will make decisions collectively, replacing the current system where the governor is the sole monetary policy decision-maker. The government has agreed to this and the committee is in the process of being set up.
Rajan has suggested that the next monetary policy review due in October, could be conducted under the MPC framework.
As such, the first and the biggest task for Patel will be to get the MPC functioning. As the central bank transitions to this new system of setting monetary policy, it will be equally important for Patel to communicate to markets and other stakeholders on how they should internalize these changes in monetary policy setting.
“Dr Patel’s appointment augurs well for continuity as he was part of formulating the design of the monetary policy framework. This would also imply that the RBI will continue to build on the path that Rajan has laid out to manage inflation,” said Shubhada Rao, chief economist at Yes Bank.
Keep the inflation fight alive
Consumer price inflation for July rose to above 6%, thereby breaching the upper limit of the RBI’s comfort band. As Patel takes over and leads his first monetary policy review, he would need to make an assessment if the accommodative stance that the RBI has maintained since the start of last year needs to change. Recent inflationary pressures have been led by higher food prices which may subside. But of the RBI and Patel’s judgement is that upside risks to inflation have risen, they may start to sound less dovish than they have in recent policy statements.
The market sees Patel has a hawk which means that hopes of easier monetary policy under the new governor would subside. Bond yields which have dropped nearly 40 basis points since Rajan announced his departure, may move up marginally on Monday, according to a senior banker who declined to be identified. Patel is also seen as someone who is not particularly generous with liquidity and until recently had maintained that liquidity should be in deficit mode in order to meet the RBI’s inflation goals. This has now changed and the RBI has committed to maintaining neutral liquidity which has come as a relief to markets and bankers. With that decision taken collectively by Rajan and Patel, markets expect the stance to continue.
“Dr Urjit Patel’s appointment provides continuity to the monetary policy making especially related to inflation targeting. It reassures both debt and equity markets of continuity in policy making at the RBI,” said Nilesh Shah, managing director at Kotak Mahindra Asset Management Co. “Market participants will be keenly looking forward to the next credit policy to hear the new governor’s views on the macro economic environment and the agenda ahead,” Shah added.
Conclude the bank clean-up
The third big item on Patel’s agenda will be ensuring that the bank balance sheet clean-up reaches its logical conclusion. Most of the heavy lifting in this regard has been done and the new governor will just need to ensure that the focus doesn’t shift away from this task.
“Urjit’s experience is a nice blend of corporate, public policy & RBI. This will be a seamless transition. At a time of uncertainty over resolution of the NPA crisis in the banking system, Urjit is perhaps the best choice to keep the focus on solving this crisis,” Praveen Chakravarty, co-founder of angel investor network Mumbai Angels, said in an email to Mint on Saturday.
Patel, as the deputy governor in-charge, has not been directly involved in the asset quality review process of bank balance sheets. However, he has worked closely with deputy governor S.S. Mundra who has spearheaded this process.
Patel and Mundra must together ensure that banks now move to the second phase of the clean-up where loans recognised as bad move towards quick resolution.
Communication
One of the perceived weak spots of Patel has been his willingness to communicate with the markets. Patel, seen as a reluctant communicator, is rarely seen out in public giving speeches and putting out the RBI’s agenda. His comments mostly come at monetary policy reviews and markets rarely get to hear from him in between policies.
“Now as the governor, it will be important for Dr Patel to communicate more to explain not just the RBI’s actions but also it’s thinking on crucial issues particularly if there are uncertain times,” said a debt market trader speaking on the condition of anonymity.
In this regard, Patel also has big shoes to fill.
Rajan, an academic, has been vocal on a number of economic and social issues and has been seen as someone who can also explain the RBI’s point of view to the markets, which can often serve as a calming force in uncertain times.
courtesy: Livemint
by admin | May 25, 2021 | Banking, News
Mumbai, (IANS) The Reserve Bank of India (RBI) on Tuesday left its key policy rates and reserve ratios unchanged, concerned over the slight rise in inflation and some domestic and global upside risks that have sprung up since April.
The decision was taken at the second bi-monthly policy review for the current fiscal by Reserve Bank of India (RBI) Governor Raghuram Rajan at its headruarters here. “The inflation surprise in the April reading makes the future trajectory of inflation somewhat more uncertain,” Rajan said.
In the first bi-monthly policy review on April 5, Rajan had cut by 25 basis points the repurchase rate, or the short-term lending rate for commercial banks on loans taken from the Reserve Bank — to 6.5 per cent from 6.75 per cent.
The reverse repurchase rate for sort-term borrowings was raised to 6 per cent from 5.75 per cent.
