DMK withdraws support to UPA government

The DMK party, which has five ministers in the Union Cabinet, are expected to put in their papers shortly

The Dravida Munnetra Kazhagam (DMK), an ally of the United Progressive Alliance (UPA) government at the Centre, has withdrawn its support to the government following difference over the Sri Lankan Tamils issue.
The DMK party, which has five ministers in the Union Cabinet, are expected to put in their papers shortly.
DMK president M Karunanidhi DMK is ready to reconsider its decision if Parliament adopts the US-sponsored resolution against Sri Lanka before 21st March.
Congress leaders P Chidambaram, AK Antony and Ghulam Nabi Azad had on Monday met M Karunanidhi at his residence in the evening to sort matters out after the latter threatened to pull out his ministers from the UPA Cabinet if his demands on the issues were not resolved




4 years ago

HA HA HA :-))

RBI Credit Policy: Repo rate cut by 25 bps, CRR unchanged at 4%

The RBI supported the UPA government’s agenda by cutting the repo rate by 25 basis points for the 2nd time in 2013 but this was overshadowed political developments.

The Reserve Bank of India (RBI) in its mid-quarter policy review on Tuesday, cut the repo rate by 25 basis points (bps) to 7.50% but kept the cash reserve ratio (CRR) unchanged at 4%. The cut in the repo rate for the second time in 2013 is seen as an attempt to spur growth.


While the RBI obliged by supporting the United Progressive Alliance (UPA) government’s growth agenda by cutting repo rate by 25 bps, its tone remained hawkish. The unfolding of political events led by Dravida Munnetra Kazhagam (DMK) chief M Karunanidhi took the stock market and Parliament by storm resulting in a market collapse which saw the Nifty ending near day’s low plunging over 100 points in intra-day trade. But more about politics later.


“The RBI’s mid-quarter credit policy today left little to expect for the markets given its disappointing commentary on the forward trajectory of inflation—expected to remain high for the year—and on the limited room to cut rates further. But the negative reaction was exacerbated with the DMK, a key ally of the UPA withdrawing support from the government on the Sri Lankan Tamils issue. We believe the legislative arithmetic is the government’s favour for now, and would be more concerned on the lack of positive triggers for the market after the credit policy,” said Dr Tirthankar Patnaik, chief economist of Religare Capital Markets.


In its monetary policy review, the RBI pointed to the unrelenting rise in food inflation, and suppressed inflation related to administered prices which carry latent inflationary pressures. It also mentioned that the key challenge is to reduce the current account deficit, which is well above its sustainable threshold.


“The forward guidance given by the RBI suggested limited room for rate cuts. The hawkish statement by the RBI corroborates our view, and we think that market expectations of more than 50 bps of rate cuts in 2013 from here will gradually come down. We continue to expect no more rate cuts in 2013,” said Tushar Poddar, managing director and chief India economist of Goldman Sachs.


In its mid-quarter review, the central bank said on the domestic front too, growth has decelerated significantly, even as inflation remains at a level which is not conducive for sustained economic growth. Although there has been notable softening of non-food manufactured products inflation, food inflation remains high, driving a wedge between wholesale price and consumer price inflation, and is exacerbating the challenge for monetary management in anchoring inflationary expectations, it added.


The year-on-year (y-o-y) headline wholesale price index (WPI) inflation edged up to 6.8% in February 2013 from 6.6% in January, essentially reflecting the upward revisions effected to administered prices of petroleum products. Worryingly, retail inflation continued on the upward path that set in from October 2012, with the new combined (rural and urban) consumer price index (CPI) inflation at a high of 10.9% in February 2013 on sustained price pressures from food items, especially cereals and proteins. Consequently, the divergence between wholesale and consumer price inflation continued to widen during the year, RBI said.


Lending rates to come down gradually and selectively


The credit-deposit ratio at 78% is at all-time highs thanks to falling deposit growth as investments in physical assets (real estate/gold) are preferred over fixed deposits. This leaves little room for the banks to pass on the repo cut benefit to the consumers especially when the scope of any cut in the deposit rates is very limited. 


“We  believe  that  the  25  bps  cut  in  the  repo  rate  will  not immediately  translate  into  a  proportionate  reduction  in lending rates. Subdued deposit mobilisation and an all-time high credit-deposit ratio (78.1% as of 22 February 2012) will constrain banks’ ability to cut deposit and lending rates across the board. Banks are likely to cut lending rates gradually and that too selectively for some portfolios. During April-February 2012-13, the median base rate reduction of 10 banks was 20 bps, while the RBI reduced repo rate by 75 bps and the CRR by 75 bps during this period,” said ratings agency CRISIL in a report.


Echoing the same, Naina Lal Kidwai, president, Federation of Indian Chambers of Commerce and Industry (FICCI), said, “The key for industry is for lending rates by banks to come down but this would happen only when banks are comfortable with deposits and deposit rates come down. Bank deposits grew at around 12.5% while credit growth was 15%-17% with credit deposit ratios at a high of 78% leading me to believe that banks will not cut interest rates in a hurry”.


Will UPA-II survive on outside support?


Without the DMK, which hold 18 seats, the UPA’s tally in the Lok Sabha will be reduced to 230 seats while a minimum of 272 seats are required for a majority in the House. However, the UPA has outside support of around 59 members of Parliament (MPs), including 22 from the Samajwadi Party (SP), 21 from the Bahujan Samaj Party (BSP), four from the Rashtriya Janata Dal (RJD), three from the Janata Dal (Secular) (JD(S)) and nine independents. As a result, with 289 MPs still in favour of the government, there does not appear to be an immediate risk. 


“Some reform legislations will still be passed, but with the general elections due by May 2014, we expect political uncertainty to resurface in in second half of FY14 and politics to trump economics,” said Sonal Varma and Aman Mohunta, both economists at Nomura Financial Advisory and Securities (India) Pvt Ltd in a report.


“However”, it added, “We see three implications. First, it makes the political situation less certain, and any instability is bad for the reform process. Second. It increases the risk of outside supporters leveraging on the UPA government’s weakness. Third, it increases the risk of an early election. In the near term, we expect the government to shift its focus to managing coalition partners.”



Vinay Joshi

4 years ago

First Naina Lal Kidwai has submitted to RBI that if it feels, HSBC will form a subsidiary to operate in India.

This posturing is to circumvent the ongoing exposures.

As regards, repo cut, is insignificant as it will not lower the interest rates.

Over a fortnight banks daily borrowing is to the tune of a trillion of rupees.No liquidity.
Easing CRR neither would have helped.

As FICCI Head, she also has to come forward to appeal to the 'affluent promoters' the willful Promoters defaulters to pay as per PC st.

If politics is a subject herein, i state that DMK has nothing to offer to its gullible Tamilians, TO SURVIVE, it has to raise certain issues knowingly they being absurd.

They forget the only PM, Rajiv Gandhi, who deployed IPKF for the betterment of the Tamils, was mercilessly killed by Tamil suicide bomber.

Today the world terrorists follow the tactic.

Politics is not the subject of this forum. Kindly desist.


RBI extends deadline for withdrawing non-CTS 2010 cheques by four months

All cheques currently with customers in the old format (non-Cheque Truncation System) will continue to be valid for another four months till 31st July, the RBI circular said

The Reserve Bank of India (RBI) on Monday asked banks to issue new CTS2010 compliant cheque books under the new format and gave them time till July-end to withdraw the old format cheques.


All cheques currently with customers in the old format (non-Cheque Truncation System) will continue to be valid for another four months (the earlier deadline was 31st March), the apex bank said.


The RBI also said the system of post-dated cheques and payment via equated monthly instalment (EMI), in either the old or new format, will be banned from now wherever electronic debit facilities are available.


“All residual non-CTS-2010 cheques with customers will continue to be valid and accepted in all clearing houses (including the Cheque Truncation System centres) for another four months up to 31 July 2013, subject to a review in June 2013,” the RBI said in a circular to bank heads.


The central bank has asked them to create awareness about the issue among customers through SMS alerts, letters, display boards in branches/ATMs, log-on message in Internet banking and notification on the website so that the deadline can be met.


“All cheques issued by banks (including DDs/POs) with effect from the date of this circular shall necessarily conform to CTS-2010 standard,” the circular said.


In December, the RBI had extended the deadline to convert to the new standard CTS-2010 by three months to 31st March, based on the representations from stakeholders. Monday’s circular was issued following consultation from the industry body Indian Banks Association and a few lenders.


The CTS-2010 eliminates the current practice of physically presenting a cheque to the payee bank, thereby substantially reducing the time for cheque clearance.


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