RBI may again raise policy rates by 25 bps: Bankers

Although bankers have suggested the RBI to pause on its interest rate hike cycle to check deterioration in asset quality and fire up credit demand, there is little chance that the central bank will accommodate their requests as both food and headline inflation are very high

Mumbai: Faced with double-digit inflation, the Reserve Bank of India (RBI) is likely to raise its policy rate again in its half-yearly review of the monetary policy on Tuesday, reports PTI quoting bankers.

Although bankers have suggested the RBI to pause on its interest rate hike cycle to check deterioration in asset quality and fire up credit demand, there is little chance that the central bank will accommodate their requests as both food and headline inflation are very high.

“It is clear that inflation is high I believe that there be interest rate hike of 25 basis points (bps) by the RBI,” Central Bank of India chairman and managing director MV Tanksale told PTI.

Vijaya Bank chairman and managing director HS Upendra Kamath said, “My view is that to control price situation there would be continuation of monetary policy.”

The central bank has hiked interest rates by 350 basis points since March 2010 to deal with the persistent high inflation, including rising prices of food items. If the RBI raises rates, it would be 13th hike in a span of about 30 months.

IDBI chairman and managing director RM Malla said, “My own sense is that there could be a pause or hike of maximum 25 basis points by the RBI in its review of the monetary policy.”

The RBI is also confronted with a weakening rupee which puts further pressure on inflation. Besides, slackening industrial growth leaves limited choices for the RBI especially in view of difficult global economic environment.

The central bank has already hinted that inflation must ease before the central bank can reduce interest rates.

“We are deeply sensitive in making India a low interest rate regime but that will take time,” RBI governor D Subbarao had said earlier this month.

“First, we need to bring inflation down in order to bring interest rates down,” he had said.

While the food inflation has touched a six month high of 10.60%, the overall rate of price rise measured on the basis of Wholesale Price Index (WPI) is stubbornly close to double digit since December last year.

The headline inflation at 9.72% in September was a tad lower than 9.78% in August but way above RBI’s comfort zone.

A weak rupee is also adding to the inflationary pressure as it pushes up the landed cost of imported commodities.

India depends on imports to meet 80% of its crude oil requirement. It also imports a large quantity of vegetable oils and pulses.

Terming the food inflation situation as a matter of worry, finance minister Pranab Mukherjee had said “we shall have to ensure...the supply constraints which are the major reason for the food inflation how to tackle it.”

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Norms to ensure continuity in accounting practices: Finance ministry

After Pratip Chaudhuri succeeded OP Bhatt at the country’s largest lender SBI, its profit plunged 99% for the quarter ended 31 March 2011. Its profit was just Rs20.88 crore against Rs1,866.60 crore for January-March quarter of 2010

New Delhi: Concerned over the unusual steep fall in State Bank of India’s (SBI) profit for the March quarter after a change of guard at the helm, the finance ministry has said it is in the process of putting in place a mechanism to ensure continuity in accounting practices in banks, reports PTI.

The finance ministry is addressing the issue and is planning to lay certain guidelines, Department of Financial Services secretary DK Mittal said, adding that “the change of top management should not lead to rewriting of books and there has to be some continuity”.

“There is a need to have more scrutiny by somebody,” he said, adding that the change in guard should not lead to a significant change in the bank's balance sheet.

After Pratip Chaudhuri succeeded OP Bhatt at the country’s largest lender SBI, its profit plunged 99% for the quarter ended 31 March 2011. Its profit was just Rs20.88 crore against Rs1,866.60 crore for January-March quarter of 2010.

“If accounts are prepared wrongly then auditor is held responsible apart from officers. There has to be some accountability. It’s not that you rewrite the accounts and you are scot free...same chartered accountant is re-appointed and officers rewrite,” he added.

Earlier the Reserve Bank of India (RBI) deputy governor KC Chakrabarty had also said that there was a need for banks to improve the standards of financial reporting.

“See our banks, I see when the chairman retires the profits go down,” Mr Chakrabarty had said.

There is a need to improve both the standard of reporting as well as that of examination of account books, Mr Chakrabarty had said.

Mr Mittal said, “One decision which has been taken and implemented is that executive directors and chairmen of banks should join the respective banks at least 15 days before (the expiry of incumbent chairman’s or executive director's term) so that they are aware of the bank. They (designated person) know the bank’s policy and direction.”

“Many times these changes (discontinuity in the financial numbers) happen because they are not aware,” Mr Mittal said.

To begin with, last week, the finance ministry had directed executive director of Indian Overseas Bank (IOB) Nupur Mitra to join Dena Bank as the chairman and managing director (CMD) 15 days ahead of schedule.

She will take over as the CMD from DL Rawal, who will be retiring this month end.

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National Stock Exchange to launch SME Exchange

The NSE, along with the Small Industries Development Bank of India (Sidbi), is planning to set up this exchange and has received approvals from the Securities and Exchange Board last week

Mumbai: The National Stock Exchange (NSE) plans to operationalise the proposed SME Exchange in the next few months, after getting the approval from the regulator last week, reports PTI.

“We may start the proposed SME Exchange in the next few months,” NSE joint managing director Chitra Ramkrishna told PTI. But she did not divulge further details.

The NSE, along with the Small Industries Development Bank of India (Sidbi), is planning to set up this exchange and has received approvals from the Securities and Exchange Board (SEBI) last week.

The SME Exchange will be a separate exchange within the NSE.

Earlier, the premier bourse BSE had received SEBI approval for its proposed SME Exchange on 28th September. The BSE is likely to start the operations next month.

The idea of SME exchange has been mooted as small and medium enterprises are not able to raise funds from primary market as investors are less inclined to invest in their issues along with the higher charges of listing. Also, scrips of many of the listed SME entities are illiquid due to poor volume.

The idea got rolling after a task-force set up by the Prime Minister’s Economic Advisory Council has recommended setting up such exclusive platforms for the SMEs. Globally, every major bourse has separate SME platforms.

The finance ministry has also asked the market regulator to consider reduction in the mandatory period prescribed for market-making from three years to six months to encourage liquidity, minimum trading lot and reduction in time period for initial public offering.

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