Further rate hike to impact industrial growth: Commerce ministry

New Delhi: A week ahead of the Reserve Bank of India (RBI) reviewing the monetary policy with expectations of a policy rate hike, commerce and industry minister Anand Sharma has cautioned that raising cost of borrowing “may not be suitable” tool to rein in inflation, reports PTI.

Making out a strong case for easy finance to the industrial sector, in a letter to finance minister Pranab Mukherjee, Mr Sharma said that industrial growth has already plunged to an 18-month low of 2.7% in November 2010.

“The high inflation in primary articles, particularly vegetables, is more on account of supply side constraints and monetary policy may not be the most suitable intervention to deal with the situation,” he said.

While he appreciated concerns on inflation, the minister said, “Industrial sector clearly needs sustained support to enable complete recovery.”

The RBI is scheduled to announce its quarterly policy review on 25th January. There are wide anticipations that the central bank in its third quarter monetary policy review will raise the key policy rates by at least 25 basis points in the wake of soaring inflation.

High food inflation has been a major concern for the government. Rising food prices have pushed up inflation to 8.43% in December last year.

Food inflation stood at a high level of 16.91% in the first week of January, after touching 18.32% in the last week of December 2010.

“A selective restriction on credit may be necessary to check inflationary pressures, but the imperative of easy credit flow for industrial sector, especially the infrastructure and manufacturing is crucial for the economy,” the minister added.

The minister said that the capacity addition has not been at an appropriate level to ensure the sustained targeted growth in gross domestic product (GDP).

The government is expecting that the country’s economy would grow by 8.75% in the current fiscal.

“... Capacity addition has been much below the 11th Plan targets in power, roads and other infrastructure sectors,” he added.

RBI has raised short-term rates six times last year to check inflation.


Lavasa project unauthorized: Environment ministry

New Delhi: The environment ministry today held that the controversial Lavasa housing project near Pune is unauthorized and directed the Lavasa Corporation Limited (LCL) to maintain status-quo at the construction site, reports PTI.

The ministry, however, said it is prepared to consider the project on merits subject to imposition of penalties, creation of an Environmental Restoration Fund (ERF), formulation of a comprehensive Environmental Impact Assessment (EIA) and the management plan, an order released by the ministry said.

“....The LCL project is in violation of EIA Notifications....the construction is unauthorized and there has been environmental degradation,” it said.

The terms and conditions include payment of a substantial penalty for the violation of environmental laws, which is incontrovertible, and creation of an ERF by the LCL which would be managed by an independent body with various stakeholders under the overall supervision of the ministry.

The ministry also put imposition of stringent terms and conditions to ensure no further environmental degradation takes place and that any degradation that has already occurred would be rectified within a time-bound schedule.


Govt mulls strict norms for wealth management advisors

New Delhi: The government is pooling in its regulatory resources to frame a comprehensive rule-book for wealth management advisors and has sought inputs for the same from the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI) and other financial sector regulators, reports PTI.

The move follows an estimated Rs400 crore fraud allegedly perpetuated by a relationship manager at the Gurgaon branch of Citibank and initial probe into the matter pointing towards various loopholes in existing regulations.

Besides RBI and SEBI, other financial sector regulators, namely commodity regulator Forward Markets Commission (FMC), insurance watchdog Insurance Regulatory and Development Authority (IRDA) and pension fund regulator Pension Fund Regulatory and Development Authority (PFRDA), will also be roped in to formulate the all-encompassing wealth management guidelines.

After their initial probe into the Citibank case, banking regulator RBI and capital market watchdog SEBI have felt the need for stricter regulations for wealth management advisors, given the huge surge in the size of assets managed by them.

Although there are no official figures for it, the size of wealth management industry is pegged at about $1 trillion—nearly double the size a couple of years ago.

Sources said that the existing practices and regulations for wealth management space from all the regulators will be collated to frame the final guidelines and an announcement to this effect could be made in the Parliament during annual Union Budget presentation next month.

The issue is likely to be discussed in the next meeting of the newly constituted Financial Stability and Development Council (FSDC), a high-level body authorised to deliberate on inter-regulatory coordination matters, sources said.

The first meeting of FSDC was held late last month and was attended by the finance minister as also chiefs of RBI, SEBI and IRDA among others.

Wealth managers, who mostly act as investment advisors for high net-worth individuals (HNIs), are currently regulated by different regulators as per the sectors in which they are offering their services.

However, there are no comprehensive rules to regulate the wealth managers for services across various sectors such as banking, markets, insurance, commodity and pension funds.

After the Harshad Mehta scam in 1992, RBI banned banks’ portfolio management services. Since then, banks are limiting their wealth management business to advising their wealthy clients without taking custody of the capital or assets.

RBI has now asked banks about their wealth management practices and whether they or their relationship managers get the power of attorney from the clients, sources said.

SEBI does not allow brokers to insist on PoAs from their clients and might suggest the same for bankers and others.

As such, the portfolio management services in the capital market are regulated by SEBI, but these regulations do not cover asset classes such as fixed deposits and other banking products, insurance, commodity and pension funds.


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