Rising asset prices a concern: RBI

Mumbai: The Reserve Bank of India (RBI) today expressed concerns at galloping rise in prices of shares in stock markets, gold and property, but refrained from saying whether there is asset bubble in the economy, reports PTI.

"Although the income levels of households and earnings of corporates in India have continued to rise, a sharp rise in asset prices in such a short time causes concern," RBI said in its second quarter monetary policy review.

It said excessive global liquidity and higher market returns is bringing in more foreign capital into the country, which is leading the equity market close to its peak.

Benchmark equity index Sensex has already crossed 20,000 points, just over 100 points shorter than all-time high of 21,207 it saw in January 2008.

On housing and gold prices also, RBI noted: "Residential property prices in metropolitan cities have gone beyond the pre-crisis level. Gold prices are ruling at an all-time high level."

Gold prices had touched a high of Rs20,120 per 10 grams on 15th October. Currently the price of the yellow metal is Rs19,800 per 10 grams.

The central bank said that huge capital inflows in the emerging market economies have resulted in appreciation in the domestic currency and accordingly a surge in asset prices.

To restrict the possibility of happening of an asset bubble, the RBI today asked banks to set aside more money for offering housing loans.

Expressing concern at rising asset prices, RBI capped housing loans to 80% of the value of the property, and raised risk weight on loans of at least Rs75 lakh.

The central bank upped risk weight on housing loans of Rs75 lakh and above to 125%. Thus, banks will now have to keep more money aside for giving housing loans. The current weight ranges from 50%-100%.

"Clearly RBI believes that there is a speculation going on in the property market and they want to curtail that. RBI has come heavily on the real estate sector. In larger cities like Delhi and Mumbai, there is too much euphoria going on, but same is not true in case of Tier II cities.

"In Delhi and Mumbai prices had dropped by 25% from the peak during recession. Now, it has again risen back to pre-crisis level or even more," global property consultant Jones Lang LaSalle Meghraj (JLLM) country head Anuj Puri said.


Air India empowered to take decision on hiring employees: Patel

New Delhi: The civil aviation ministry today said that the management of Air India was empowered to take any decision during staff selection, following reports that some of its board directors had opposed appointment of Pawan Arora as COO of its low-cost arm Air India Express, reports PTI.

"If there is any controversial appointment, I am sure that Air India management and the Air India board will take a suitable decision. It is a question of an Air India employee, so let the Air India management and board take care of these issues," civil aviation minister Praful Patel told reporters here.

He was replying to questions on reports that some of Air India's independent directors had raised objections on the appointment of Mr Arora as well as the functioning of its top management.

He asserted that there was "no controversy" in the board's independent directors meeting top officials in the Prime Minister's Office (PMO) to discuss the issue on functioning of Air India.

Yesterday, the five independent directors of the company - Anand Mahindra of Mahindra and Mahindra Ltd, Ficci's secretary general Amit Mitra, Ambuja Realty chairman Harsh Neotia and former air chief Fali H Major - met Prime Minister's principal secretary T K A Nair and reportedly expressed their anguish over the appointments being made by the company.

They also met civil aviation minister Praful Patel today and briefed him about the meeting with the PMO.

"There is no question of any controversy. Independent directors wanted to meet me and they had courtesy call. They have been on the board for more than six months and they wanted to share their views with me," Mr Patel said.

Apart from the issue of Air India COO, issues concerning Air India's financial position, debt situation and human resources are also understood to have come up for discussion in the meeting with TKA Nair.

Talking about the equity infusion in the state-run airline, Mr Patel said that "Rs1,200 crore equity for Air India is earmarked in this year's budget and it will come up before the Cabinet Committee on Economic Affairs this month".

Air India, which has a debt of an estimated Rs18,000 crore, has sought recasting of its debt on the lines of Vijay Mallya-owned Kingfisher Airlines, which recently got RBI approval for debt restructuring.

The airline has been working on a financial turnaround plan to enhance revenue and cut losses. The proposals include tapping of business opportunities by launching a feeder service, called 'India Hopper', with about 40 small aircraft by March next year.

Based on these proposals to tap business opportunities and cut costs, the government is likely to infuse Rs1,200 crore as equity to help Air India meet its financial commitments, mostly repaying of loans and interests for aircraft acquisition.

With a renewed surge in air traffic, Air India has improved its finances significantly in terms of revenue and yield. It has also enhanced savings on fuel by almost Rs350 crore and returned 16 leased aircraft.



While joining the chorus of praises and compliments bestowed on you from the heavy weight like...

Premium Content
Monthly Digital Access


Already A Subscriber?
Yearly Digital+Print Access


Moneylife Magazine Subscriber or MSSN member?

Yearly Subscriber Login

Enter the mail id that you want to use & click on Go. We will send you a link to your email for verficiation

We are listening!

Solve the equation and enter in the Captcha field.

To continue

Sign Up or Sign In


To continue

Sign Up or Sign In



The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)