RBI to continue tight liquidity stance till inflation eases

Tight liquidity situation in the system had forced banks to borrow over Rs1.90 trillion from the RBI

The Reserve Bank of India (RBI) said its tight liquidity stance would continue as long as inflation is above its comfort level.

"If inflation is high above the comfort level, RBI's general effort will be to keep the liquidity tight," RBI deputy governor KC Chakrabarty told reporters on the sidelines of SKOCH summit in New Delhi.

Wholesale price-based inflation, which remained high during most of 2011, has started showing signs of moderation and was measured at 6.95% in February.
Tight liquidity situation in the system had forced banks to borrow over Rs1.90 trillion from the RBI.

Notably, banks have been borrowing over Rs1 trillion from the central bank on an average per day basis for the past two months. To ease the tight liquidity pressure, the central bank has reduced cash reserve ratio—the portion of deposits banks are required to keep with the RBI—by a total of 1.25% in two separate tranches in its January and March policy review this fiscal year so far. These steps infused a total Rs80,000 crore into the banking system. Asked if excise duty increase would lead to increase in inflation, he said, “if we can use technology and improve the work system processes, absorb the cost then there would not be inflation”.

The finance ministry and the RBI are likely to finalise the market borrowing programme for the first half of the next financial year soon. The government borrows funds from the market to bridge revenue-expenditure gap and also roll over the past debts which mature for repayment. While unveiling the Budget proposals for 2012-13, Finance Minister Pranab Mukherjee had said that the net market borrowings for the fiscal would be Rs4.79 trillion, up from Rs4.36 trillion estimated in the current fiscal. Last year the government had exceeded the budgeted borrowing target by over Rs92,000 crore as high subsidy expenditure led to overshooting of government finances.


Centre to borrow Rs3.79 trillion in first half of next fiscal

For 2012-13, the government has pegged the fiscal deficit at Rs5.13 trillion or 5.1% of the GDP

The Centre said it would borrow Rs3.79 trillion from the market in the first half of the next fiscal, which would be over 65% of the total amount that it wanted to raise from borrowings during 2012-13.

“We have budgeted the fiscal deficit at Rs5.13 trillion. In the first half, gross borrowing will be Rs.3.79 trillion,” department of economic affairs secretary, R Gopalan told reporters after a meeting to decide the borrowing calendar for the next fiscal.

The meeting was attended by RBI deputy governor HR Khan and senior officials of the Finance Ministry. The gross borrowing during the first half will be 65% of the total planned during the next fiscal.

Mr Gopalan said, “We had some problem about IT refund last year. That we have taken care this year and we have also planned according to what will be the inflow and expenditure pattern. We think this will be a reasonable way of aligning with the reality of the cash requirement.”

For 2012-13, the government has pegged the fiscal deficit at Rs5.13 trillion or 5.1% of the GDP.

During 2011-12, the government borrowed over Rs5.10 trillion from the market. The borrowing had exceeded the budgeted borrowing target by over Rs92,000 crore as high subsidy expenditure led to overshooting of government finances.
Pinning hope of increase in small savings collection, he said borrowing could come down if it improves.

“If my small savings collection improves, it will definitely be (borrowing will come down from the Budgeted level),” he said.

“Small savings rates have been revised upwards. We hope that repo rate will start coming down because of lower inflation. Once that happens and with the rate of small savings, it is a possibility that more amount flow into the small savings and to that extent general borrowing will be less,” Mr Gopalan said.

On the tight liquidity scenario, Mr. Gopalan said, “OMO (open market operation) is the RBI's decision. As far as liquidity stress is concerned, the RBI is monitoring it closely.”

“As and when they perceive stress in liquidity, they will keep on taking necessary step,” he said.


Public Interest Exclusive
RTI action makes 105 branches of leading banks become “customer-sensitive”

RTI activist  Commodore Lokesh Batra uses RTI to make RBI act in public interest when a Supreme Court order asked 105 branches of leading banks in Noida to shift out from the residential zones they have ``illegally’’ occupied, setting off a panic among several lakh citizens

Imagine the bank which is in your neighbourhood suddenly decides to move to another location? Obviously, you would panic, particularly if you have a locker where you keep your precious jewellery and other stuff. This is exactly what happened when in December 2011, the Supreme Court ordered that 104 branches of 21 major banks which since decades, had ‘illegally’ occupied residential areas in Noida, shift out. The court ordered the Noida Authority to seal the branches of these banks if they failed to comply with the order.

Nervousness set in amongst customers who number nearly 10 lakh, resulting in panic emptying of lockers and in some cases, protests in front of some banks. The writ petition was triggered by a residential property owner, who gave his property on lease but it was subsequently rented out to a bank and another commercial outfit. At the fag end of this legal intervention came the Supreme Court judgment asking all banks in residential areas to vacate or have them sealed. The banks appealed for four months’ time to build strong rooms, etc, but since the Supreme Court did not acknowledge the time frame in its order, panic set in. Now, the next hearing is on 30th March.

What is interesting is that while the Noida Authority began following the SC order promptly to the extent of sealing three banks, no one thought of the poor, helpless customers who were at the receiving end; senior citizens would have to bear the maximum brunt of this sudden action. Leading RTI (Right to Information) activist of Delhi, Commodore Lokesh Batra intervened with the powerful and people-friendly weapon of RTI. His main concern was that peoples’ sentiments should be kept in mind before such a mass eviction.

2nd February: Commodore Batra sent an email to VS Das, executive editor, Reserve Bank of India (RBI), stating, “I am writing this with urgent plea for RBI’s intervention to assure safety of assets of customers holding accounts and lockers in Noida. You may be aware that about 104 branches of various leading banks are operating in Noida from residential areas for decades now. In a recent order, the Supreme Court has directed the Noida Authority to get these banks’ branches vacated from their present location. However, the time given is too less for these banks to find alternate sites… Starting 1 February 2012, the Noida Authority has started sealing these banks. This has triggered panic amongst customers as they are not sure about the safety and security of their bank assets and belongings kept in lockers. I submit you to issue necessary guidelines/instruction to concerned banks in Noida to ensure safety of lockers during their shifting process and other interventions to curb panic amongst customers.”

Predictably, there was silence from the RBI, so in the first week of March he invoked the RTI Act, to find out what action the RBI has taken after he shot off the letter on 2nd February. He also filed a RTI application to the ministry of finance to find out what action was taken of a similar letter written to it on 8th February.

Following were the revelations under RTI:

On 16 March 2012, information under RTI by the RBI revealed that “a copy of the email dated 2nd February 2012, had been forwarded to our Department of Banking Supervision (DBS), Lucknow, as the branches in Noida are under its jurisdiction. Copies of the said email had also been forwarded to Regional Director, New Delhi and Regional Director, Kanpur.”

The copy of the email forwarded by Deepak Singhal, Regional Director, Kanpur on 2nd February itself stated, “Please look into the trailing mail (Comm Batra’s). In co-ordination with the Lucknow office you may like to call a meeting of bankers having branches in Noida to see what can be done to allay the fears in the mind of customers of Noida branches. They need to be assured that their valuable in lockers are safe.”

Thereafter, RTI documents revealed that the Department of Banking Reservation, RBI, Lucknow, indeed held an ‘emergency’ meeting with the controlling heads of the 21 banks, after Commodre Batra’s letter and that too on the same day—3rd February itself.  

(Incidentally, an official written by an assistant general manager to the chief general manager in charge of the Department of Banking Supervision reveals that
“These 21 major banks have 211 branches out of a total of 260 branches of 41 banks in Noida, i.e representating 81% of branches.”)

The internal document of the RBI states, “a meeting with the controlling heads was held in RBI, Lucknow on 3rd February… The issue of sealing of banks… was discussed at length.”

“Considering the panic in the public following the newspaper reports on the issue, the house resolved as under:

“The customers will be advised by the banks through email, SMS, notce displayed at the branches and personnel posted at the branches regarding the alternate arrangements made for the conduct of smooth banking functions including locker operations up to 5 March 2012 (now extended to 30th March), the next date of hearing/time given by the Supreme Court…”

The branches of banks affected by the Supreme Court order are: Allahabad Bank (6 branches); Axis Bank (5); Bank of Baroda (5); Bank of Maharashtra (3); Bank of India (9); Canara Bank (11); Central Bank of India (5); Corporation Bank (7); Dena Bank (2); HDFC Bank (18); ICICI Bank (6); Indian Overseas Bank (10); Oriental Bank of Commerce (25); Punjab National Bank (26); State Bank of India (35); Syndicate Bank (20); UCD Bank (2); Union Bank of India (6); IDBI Bank (3); Vijaya Bank (4); Union Bank of India (3).

On 8th February, Comm Batra also filed a RTI application to the ministry of finance, Department of Financial Services asking what action was taken on his letter in which he sought the government’s intervention in reducing the panic of the customers and in helping banks to get more time to shift their premises.

On 1st March, the ministry of finance sent a letter to the Public Information Officer, Reserve Bank of India, stating, “We request Reserve Bank of India to examine the matter and take appropriate action in this regard.”

Thanks to Comm Batra, the banks, since February, have been holding regular press meets/sending press releases assuring the customers that there would be no knee-jerk reaction and they would be amply informed through SMS and emails of the situation of their eviction and transfer to new ‘legal’ premises.

Hail RTI!



S H Subrahmanian

5 years ago

The headlines tothis story:

A well known tale from Aesop's fables about the "fly on the wheel"

"Look, what a lot of dust I raise," says the fly on the axle of the chariot."

Moral: Its the chariot which raises the dust and not the fly.

Nagesh Kini FCA

5 years ago

Thanks a million Comm.Batra for your efforts.
The RBI ought to go back to the Supreme Court listing the difficulties to the local bank customers and once and for all get the order modified.
We do need more dedicated individuals like Comm. Batra. May his tribe increase!

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