RBI frees rates on NRI deposit schemes; move to stem rupee fall

The deregulation in rates on NRE and NRO deposits is intended to make such funds more attractive at a time when the rupee has depreciated sharply during last few months

Mumbai: The Reserve Bank of India (RBI) on Friday freed interest rates on various non-resident deposit schemes, a move that will help attract more funds from non-resident Indians (NRIs) and arrest the slide in rupee in the forex market, reports PTI.

The decision to de-regulate interest rates on such deposits comes within 24 hours of RBI putting restrictions on forward contract in rupee to check speculations in the forex market.

The RBI had already freed the saving and deposit rates for resident bank customers.

Friday’s decision will give banks the freedom to fix rates on Non-Resident (External) rupee deposits and Ordinary Non-Resident (NRO) accounts with immediate effect.

“With a view to providing greater flexibility to banks in mobilising non-resident deposits and also in view of the prevailing market conditions, it has been decided to deregulate interest rates (such accounts),” the RBI said in a circular.

“Interest rates offered by banks on NRE and NRO deposits cannot be higher than those offered by them on comparable domestic rupee deposits,” it added.

The deregulation in rates on NRE and NRO deposits is intended to make such funds more attractive at a time when the rupee has depreciated sharply during last few months.

“The move will increase supply of foreign currency, including dollar, in the system,” Crisil chief economist D K Joshi commented

Following Thursday’s RBI move, the rupee made a smart gain of 94 paise to settle the day at 52.70/71 against the dollar on fresh selling of the US currency.

The RBI in its monetary review said it is closely watching the rupee situation and will respond to it as appropriate.


‘Financial literacy and inclusion go hand-in-hand’

S Aftab, general manager-corporate communications at Union Bank talks about investor education at Moneylife’s seminar at Pune

“Financial inclusion is the buzzword today, but investors continue to be frustrated by lack of clarity on financial products, regulations, laws and schemes. This is why we need to focus on investor-education and financial literacy,” said S Aftab, general manager, corporate communications, support services & branch expansion departments, Union Bank of India, speaking at Moneylife Foundation’s seminar titled ‘Investor, Empower Yourself’ in Pune.
This was the fourth Moneylife seminar supported by Union Bank. Mr Aftab said, “People need to be aware of financial issues, and we hope we continue to promote financial literacy. Money is everything, and you must know how to be financially secure and how to invest it properly so that it gives you a good interest or return so that your future is free of worry.”

Ms Sucheta Dalal, trustee of Moneylife Foundation, spoke on the schemes to avoid while investing—like pyramid and multi-level marketing schemes, internet fraud mails and unregulated products. “It is better to invest with a scheme/product that is overseen by regulators like the Reserve Bank of India (RBI), Insurance Regulatory and Development Authority (IRDA) or Securities and Exchange Board of India (SEBI). There is no guarantee that you will not lose money if you invest in mutual funds or insurance products, but you can approach the regulator in case anything goes bad,” she said.
She also spoke on the importance of making a will and getting adequate insurance coverage. “Always bargain and negotiate with service providers and try to get the best deal. Also, if you get a better deal from someone who is not your traditional banker or insurer, move on,” she said.

She also talked about the many hidden charges for credit card transactions, especially cash withdrawals for which the interest gets compounded very fast. “People run up lakhs in unpaid credit bills, and they think everything is dissolved if they tear up the credit card. Even if the company can’t catch you, uncleared transactions will get registered with credit rating agencies. It will bring down your credit score, and later, you will not get loans,” she said. Ms Dalal also talked about checking one’s credit score from agencies. Often, a person doesn’t know if he is a credit defaulter—and sometimes, the transactions show ‘uncleared’ due to mistake of the banks.
Mr Debashis Basu, trustee of Moneylife Foundation, spoke on the importance of choosing the correct mutual funds. He also spoke on investing in gold, which is a speculative asset. “If we track gold prices through 30 years, we will see that it is dependent on the value of the dollar. Unless you are really good at decoding currency movements, avoid investing in gold,” he said.

Mr Basu also talked about planning retirement expenses and saving accordingly. “Erosion will eat away your savings. One must start investing in mutual funds and stocks for wealth creation—but invest only that which you can spare,” he said.

Following a lively question-answer session, the seminar ended in applause.


Downslide to continue: Weekly Market Report

Nifty may see the level of 4,400

The gloomy outlook of the domestic economy as portrayed by private analysts and the Reserve Bank of India (RBI), in its mid-quarter monetary policy review, was seen as the main reason for the market ending 4% lower for the week and down for the second week in succession.

The 5.1% contraction in industrial output for October saw the market falling sharply on Monday. Short covering towards the end of trade helped the indices close higher on Tuesday recouping nearly half the losses accrued the previous day. Ignoring the decline in headline inflation for November, the choppy market settled lower on bleak global cues on Wednesday.

Nervousness ahead of the RBI quarterly policy review induced a high degree of volatility in the market, but a recovery in the second half of trade ensured a flat close on Thursday. A dim outlook for the economy outlined by RBI in its policy review resulted in the market closing at its lowest in two years on Friday.

The Sensex tumbled 722 points to close the week at 15,491 and the Nifty declined 215 points to settle at 4,652. The market is likely to see a further downtrend with the Nifty touching 4,400.

All sectoral indices settled lower with the BSE Capital Goods index (down 10%) and BSE Consumer Durables index (down 8%) as the top losers.

Cipla and Hindustan Unilever (up 2% each) were the only gainers on the Sensex this week. The losers were led by Larsen & Toubro, Sterlite Industries (down 12% each), State Bank of India (down 10%), DLF and BHEL (down 9% each).

The top performers on the Nifty were Dr Reddy’s Laboratories, Cipla, HUL  (up 2% each), HCL Technologies and Infosys (up 1% each). The major losers on the index were L&T (down 13%), Reliance Communications, Sterlite Ind, Reliance Power (down 12% each) and Punjab National Bank (down 11%).

After 13 increases in key interest rates in the last 20 months, the RBI, this time kept the repo and reverse repo rates unchanged at 8.5% and 7.5%, respectively. The central bank also decided to retain the cash reserve ratio at 6%. The industry was expecting a minor cut in CRR to induce liquidity in the system and promote investments. The pause in rate hikes comes at a time when inflation has started showing signs of moderation.

In a double whammy, negative industrial output and sliding rupee against the dollar have added to the woes of already slowing Indian economy with finance minister Pranab Mukherjee saying that it would be a challenge to maintain the fiscal deficit at 4.6% of the gross domestic product (GDP).

Industrial output registered a negative growth of 5.1% in October, lowest in over two years, mainly due to rising interest rate, high prices and global uncertainties. The decline in industrial production has mainly been on account of poor performance of the manufacturing and mining sectors, resulting from the twin impact of high interest rate and global slowdown.

Moderating prices of essential food items like onions, potatoes and milk pulled down the headline inflation marginally to 9.11% in November, from 9.73% in October and 8.2% in November 2010. However, the figure has stubbornly remained above the 9% mark since December 2010.

Also, food inflation for the week ended 3rd December fell to a nearly four-year low of 4.35%. The latest weekly food inflation number is the lowest since the week ended 23 February 2008, when it was 4.28%. Expressing hope, chief economic advisor Kaushik Basu said food inflation may go down below 3% in a month’s time.

On the global front, Italy’s prime minister on Friday cautioned European policymakers of dividing the continent in an attempt to resolve the debt crisis. After the European markets closed for the week, Fitch said it may downgrade France, Italy, and five other Eurozone countries, on account of a lack of a “comprehensive solution” to the region's debt crisis. Last week, S&P warned that it would downgrade the ratings of many Eurozone sovereigns, including France and Germany.

Meanwhile, key Senate leaders in the US reached a tentative agreement late Friday on a two-month extension of a payroll tax cut for almost every American worker, while the House passed the $1 trillion spending bill which averted a government shutdown that otherwise would have begun Friday at midnight. The Senate is expected to pass the bill on Saturday, keeping the government funded till the end of the fiscal year that ends on 30th September.


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