RBI hikes CRR by 75 basis points

While the RBI has kept key rates unchanged in its latest quarterly monetary review, it has raised CRR by 75 bps

The Reserve Bank of India (RBI) today increased the mandatory cash reserves of banks held by it by 75 basis points in a bid to mop up excess liquidity to combat rising inflation, reports PTI.

This 75-basis point increase in cash reserve ratio (CRR) to 5.75% is expected to suck out at least Rs36,000 crore from the system. The move from the RBI was widely expected, with food inflation rising to 17.40% for the week ended 16 January. The move is to check food inflation spreading to other sectors.

According to RBI estimates, inflation is likely to touch 8.5% by this fiscal-end from over 7% in December. Earlier in October, the apex bank had projected the rate of price rise to be at 6.5% by March-end.

However, short-term lending and borrowing rates (repo and reverse-repo) between RBI and banks were kept unchanged, leading to speculation that banks\\\' commercial lending rates may not change.

Central Bank of India executive director Arun Kaul told reporters that the CRR hike is more than market expectations and that liquidity would definitely go down and may have some impact on interest rates.

The apex bank also raised its economic growth projection to 7.5% from its earlier estimate of 6% for the current fiscal.
 

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What will SEBI decide finally on the NSDL issue?

The SEBI board is scheduled to meet on 2nd February to discuss the alleged failure of National Securities Depository Ltd (NSDL) to prevent the IPO scam during 2003-2005

Securities market regulator, the Securities and Exchange Board of India (SEBI), is scheduled to hold a board meeting on 2 February 2010 to discuss and take a final call on the alleged failure of National Securities Depository Ltd (NSDL) in preventing the initial public offer (IPO) scam during 2003-2005.

The IPO scam case refers to SEBI's investigations into several IPOs that hit the market between 2003 and 2005. SEBI's probe revealed that shares reserved for retail investors were illegally acquired by various entities through tens of thousands of fake demat accounts and fictitious applications.

A two-member bench was constituted after CB Bhave took over as SEBI chairman. The bench comprising G Mohan Gopal (director of National Judicial Academy) and former RBI deputy governor V Leeladhar had passed an order against NSDL, directing it to carry out an independent enquiry to establish individual accountability for the failures of NSDL in the IPO scam.

This was followed by a one-year effort to bury the orders of the two-member bench. Finally, under pressure from a public interest litigation filed in the Andhra Pradesh High Court, the SEBI board met and was forced to release the three orders of the Bench into the public domain; but the Board sought to kill the application by declaring that two of the orders as void or 'non est' since the Bench had gone beyond its brief in criticising the regulator itself.

Dr Gopal had objected to this action taken by SEBI. His reservations were echoed by Justice J S Verma, former Chief Justice of India, who declared that such quasi-judicial orders can only be reviewed and quashed “by a judicial forum with requisite jurisdiction, at the instance of a petitioner with standing to seek relief.”

It is reliably learnt that this opinion of Justice Verma was formally put before the SEBI board, at the regulator’s board meeting which was headed by Mohandas Pai on 22 December 2009.

The SEBI board had also sought the legal opinion of Mr C Achuthan, former Securities and Appellate Tribunal (SAT) presiding officer, in relation to this matter. Dr Gopal had officially pointed out that Mr Achuthan was conflicted because he had represented one of the IPO accused (Karvy) in a matter before the Andhra Pradesh High Court. Mr Achuthan is also a director on the NSE board, a SEBI-regulated entity, which is the promoter and major shareholder of NSDL.

There is also a strong view that SEBI officials are working overtime to protect Mr Bhave from courting controversy, by delaying the proceedings relating to this case.

It remains to be seen if SEBI goes ahead and exonerates NSDL entirely and rejects the two-member bench's order.
 

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Former finance secretary to become chairman of NSE

Dr Vijay Kelkar, who also recently headed the 13th finance commission, agrees to become the non-executive chairman of the NSE

The country’s largest stock exchange, the National Stock Exchange (NSE), is roping in big names into its management in a bid to maintain its stronghold over the Indian stock markets. The latest addition to its management cadre is Dr Vijay Kelkar, former finance secretary to the government of India and also former advisor to the minister of finance.

Prior to this appointment by the NSE, Dr Kelkar headed the 13th Finance Commission until it submitted its report recently.

Dr Kelkar, who is well-known for his contributions to economic reforms in India, holds a doctorate in development economics from the University of California at Berkeley and completed his MS from the University of Minnesota. He has had an illustrious career, holding various senior level positions in the government of India as well as in international organisations.

He has also worked as the chairman of the Tariff Commission and secretary of the ministry of petroleum and natural gas. Apart from this, Dr Kelkar has represented India on global forums as an executive director at the International Monetary Fund and as director at the United Nations Conference on Trade and Development.
Interestingly, Dr Kelkar was also recently accepted as an independent director to the board of Tata Consultancy Services.
 

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