Sensex, Nifty in a bullish mode: Monday closing report

Nifty has to stay above 6,080 for the upmove to continue

On a lower volume of 53.85 crore shares on the National Stock Exchange (NSE) the Nifty continued to close in the positive for the fifth consecutive session on Monday. The market traded mostly in the green with minor dips in the red. The Sensex opened at 20,535 and immediately after hitting a low of 20,498 went upto the level of 20,646. The 30-share benchmark closed at 20,608 (up 79 points or 0.38%). The Nifty opened in negative at 6,093, went down to 6,083 and closed at 6,113 after hitting 6,124 (up 17 points or 0.27%).


Among the other indices on the NSE, the top five gainers were IT (2.16%); PSU Bank (0.78%); Service (0.75%); Midcap (0.62%) and Nifty Midcap 50 (0.60%). The top five losers were Metal (0.75%); FMCG (0.65%); Consumption (0.44%); MNC (0.43%) and Pharma (0.38%).


Of the 50 stocks on the Nifty, 23 ended in the green. The top five gainers were TCS (4.55%); Ambuja Cements (2.77%); Wipro (2.41%); ACC (2.27%) and Bank of Baroda (1.63%). While the top five losers were Hindalco (3.24%); Asian Paints (3.02%); GAIL (2.14%); Cipla (2.06%) and Tata Steel (1.96%).


Industrial production growth slowed to 0.6% in August 2013 from an upwardly revised 2.8% pace in July, hurt by weak investment and consumer demand, government data showed on Friday, 11 October 2013. The entire growth in industrial production in August 2013 was mainly driven by 7.2% surge in electricity generation. The mining output continued to witness decline in output, while the manufacturing sector output also recorded fall in August 2013. The manufacturing sector, which constitutes about 76% of industrial production, crawled up 0.1% from a year earlier. Capital goods production has contracted by 2% in August from a year earlier.


Wholesale price inflation (WPI) accelerated to a seven-month high in September 2013. WPI inflation accelerated to 6.46% in September 2013, from 6.1% in August 2013. Increase in inflation in September 2013 was mainly driven by surge in inflation for crude oil and non-food primary articles viz. fibres and oilseeds. Core inflation accelerated to 2.06% in September 2013 from 1.97% in August 2013. Inflation for July 13 was revised upwards to 5.85% from 5.79% reported earlier.


US indices closed in the positive on Friday on the hopes of talks between the White House and Congress will lead to a spending package needed to fund the government and put to rest concerns the country will hit its debt ceiling and risk default. But this turned out to be misplaced.


Asian markets which were open today mostly ended in the negative as American lawmakers struggled over an accord to raise the US debt limit and restore government operations. The only gainer was Shanghai Composite (up 0.43%) while the top loser was Taiwan Weighted (down 0.90%). Stock markets in Japan, Indonesia and Hong Kong were shut for holidays.


China's exports unexpectedly fell in September and inflation jumped on food prices, signaling constraints on the nation's recovery. Overseas shipments dropped 0.3% from a year earlier, customs data showed on 12 October, while imports rose a more-than-forecast 7.4%. Consumer prices rose 3.1% as food costs advanced the most since May 2012, statistics bureau figures showed in Beijing.


European indices were trading mostly in the negative and the US Futures were deeply in the red after talks between Republicans and Democrats broke down on the issue of debt ceiling.


Meat and eggs consumption growing faster in India than milk, cereals

Almost 37% of agricultural output growth between 2005 and 2011 came from animal products. This is partly a reflection of changing food habits—per capita consumption of food grains is falling whereas that of edible oil, milk and meat is rising, says Credit Suisse

Milk, meat, and egg consumption in India is rising much faster than that of cereals.  Not surprisingly, 37% of agricultural output growth between 2005 and 2011 came from animal products. Within this category, output of eggs and meat has risen faster, and poultry the fastest. Animal products have also contributed to 33% of the incremental food inflation over the past five years; as consumption baskets are revised, these could be even higher, says Credit Suisse in a research note.


Of India's agricultural output, 31% comes from animal products: milk, meat, egg, fish and others such as silk and honey. As these are growing faster, their contribution to incremental growth has been higher—37% of the agricultural output growth between 2005 and 2011 came from animal products.


According to the report, this part of agricultural output is growing faster than all other agricultural categories except fruits and vegetables. This is partly a reflection of changing food habits—per capita consumption of food grains is falling whereas that of edible oil, milk and meat is rising, particularly in the recent past, says the report.



Credit Suisse says output of eggs and meat in particular has risen faster than that of other animal products like milk and honey, however, the growth in animal products is likely under reported in the country. It said, "Unlike cereals, the largest source of taxes for governments over centuries, livestock data collection seems patchy. For the most rigorous source—the livestock census, conducted every four-six years—the last updated data are from 2007(2012 survey data are not out yet). This is before what we call 'the Silent Transformation' started. Other sources of data are inconsistent, though all point to rising growth."

The report says while it is clear that demand for chicken meat has accelerated, the quantum of the change is uncertain; three different sources suggest different levels of demand growth. NSSO surveys suggest the demand for chicken meat saw 20% CAGR between 2005 and 2010. However, the Animal Husbandry department believes chicken meat output only saw 8% CAGR, and FAO believes the chicken population rose 12%.


Milk yields rising at 3% CAGR, but still low

According to Credit Suisse, growth in milk production in India has been quite steady at about 4% a year over the past few decades. About half of that has come from an increase in the numbers of cattle and half from an increase in yields.


Much of the yield increase also seems to be coming from an improvement in breeds, particularly cows. For buffaloes, which contribute to more than half of India's milk production, the yield improvement has been quite low. The current fat content of the milk from cows in India (about 4.5%) is quite low though some consider it healthier, which is possibly one of the reasons Indian milk is among the cheapest in the world. Buffalo milk fat content is higher (about 7%), so it commands a better price.


Despite having the largest heads of cattle globally, India's milk output is only the second largest after the US, with yields per cow right at the bottom, though they have been rising rapidly of late, Credit Suisse says.


Cost still pushing up prices: A sharp spike unlikely

According to the report, milk has been a significant contributor to food inflation over the past five years, even though the recent tempering of milk price appreciation has meant that its contribution to food inflation over the past year has been much lower.


"Looking at annual changes in milk prices, we conclude that the five-year surge was likely due to a one-off sharp increase in fodder and labour prices in FY10, the two key input costs for milk production.  This correlation doesn't apply strongly on an annual basis, but it should not either—after all, the capital investment in a cow/buffalo is a sunk cost and whether to increase supply or not cannot be taken on an annual basis. This adjustment happens over several years (from insemination of the animal to the lactation period). Over a five-year period, though, there is a meaningful visual correlation," Credit Suisse says.


Meat exports: Structural uplift

Meat production as per official statistics has been growing at the fastest pace among all agri sub-categories, and particularly so among animal products. This is despite what seems to be gross under-reporting of growth, given that some government surveys seem to suggest much faster growth in demand than what supply data suggest.


Exports of animal products are rising at a rapid clip, and we estimate more than 7% of total output is now exported. This is primarily meat (beef—India was the largest beef exporter in the world in CY12, and the FAO expects India's exports to rise another 20% in CY13), though marine and poultry and dairy exports too have risen, the report says.


Almost all of the increase in meat production in India has come from buffalo meat (Figure 28), 90% of which is exported.  The increase has come primarily from Uttar Pradesh (UP), Andhra Pradesh (AP) and Punjab. The numbers slaughtered in 2011 were 6.9 million, which should have risen to about 10.5 million animals by FY13. It is hard to see this number rising much higher, as a top-down analysis suggests  that  of the 105 million buffaloes in 2007, only 20 million were males, and less than 2 million were females beyond reproductive age, the report says.


Poultry production = job creation

The fastest growing form of meat production is poultry, which not surprisingly is where demand growth due to changing food habits is the strongest as well. As  the poultry population saw a CAGR of 10%+ per annum in 2006-11, it also created  about 0.75 million jobs per year during 2005-10. We expect it to continue to drive job growth at the pace of 0.8-1.0 million jobs per year going forward, Credit Suisse says.


Reorganising bank selection advisory panel is a good governance imperative for the RBI!

There is a common misconception that conflict of interest only arises if a person has done something improper. The answer is a big NO! Perception is a very critical aspect to the notion of conflict of interest

In the last few Moneylife articles, we have been talking about the issue of conflict of interest with regard to the recently appointed RBI financial inclusion committee and in this article I focus on the RBI banking selection advisory panel. At the outset, I would like to state that serious conflicts of interests exist because one of the members of the banking selection advisory panel, Dr Nachiket Mor, is also chair of the RBI financial inclusion committee which has two members who have directly applied for the banking licenses. Further, several members of the above mentioned RBI financial inclusion committee have a relationship to these and other banking license applicants. The key relationships have already been highlighted in the previous money life articles and the interested reader may refer to these for understanding the exact nature of the various conflicting relations -  RBI’s New Financial Inclusion Committee: Rife with conflicts of interests,  Does the RBI know how much conflicts of interest it has created? and Why should RBI immediately disband newly appointed Committee on Financial Inclusion?


Now, let us focus directly on the banking selection advisory panel which has four members as per RBI’s announcement dated 4th October 2013. The first striking point about this panel is that it has three past regulators and a banker (with significant connections to the private financial sector). It must also be mentioned that two of the regulators retired from their regulatory positions within the last three years or so. Their key inter-relationships and conflicts of interests are listed in Table 1 below:


Table 1 : Conflicts of Interests in The 4 Member RBI Banking Selection Advisory Panel

Conflict of Interest Origins in 4 Member RBI Banking Selection Advisory Panel  (Based on Facts Available with Writer and Best Available Judgement of the Writer)

Number of Members of the RBI Banking Selection Advisory Panel Who have This Conflict of Interest

Number of Members in RBI Banking Selection Advisory Panel with a Specific Conflict of Interest as a proportion of Total Committee Members

  1. Direct on-going as well as past relationship with banking license applicants



  1. Direct on-going as well as past relationship with institutions that are investees in banking license applicants



  1. Direct on-going as well as past relationships with institutions that have a relationship to banking license applicants



  1. On-going close interrelationships between panel members in terms of serving on each other’s advisory panels and/or  joint organisation of events in area of financial inclusion and the like



  1. Very close personal and professional relationship spanning over 2 decades with serving RBI staff (Governor, Senior management and/or any board member of the RBI)



  1. Performing multiple roles at RBI at this very time (including by serving on the banking selection advisory panel), thereby, creating huge opportunities for potential conflicts of interest.



It must be remarked that one member of the banking selection advisory panel is at present holding several positions at the RBI: a) Member of RBI’s eastern board; b) Member of RBI’s Central Board; c) Member of RBI’s Financial Inclusion Committee Under Dr K C Chakrabarthy; d) Member of the Research Advisory Committee of CAFRAL, which is completed funded by RBI and located at the RBI; e) Chair of the new RBI Financial inclusion committee announced on September 23rd and f) Member of the Banking Selection Advisory Panel


While the above conflicts of interests are general in nature, a second more crucial conflict of interest concerns the existing supervisory process and capacity at RBI and this is enumerated below.


There are large industrial business groups among the banking license applicants. And, there has been significant controversy regarding the granting of bank licenses to large industrial business groups for various reasons (this is dealt with in a separate article). And, likewise, there are NBFC and MFIs, which have also applied for the banking licenses and in the last few weeks we have had a lot of suggestions towards award of licenses to ‘small’ banks.


Given the above, I see two fundamental judgments to be made by the RBI banking selection advisory panel, while recommending banking licenses:

a) Understand the true capacity of the RBI to appropriately ring fence banking entities of large industrial business groups and supervise them effectively;

b) Analyse the objective ability of the RBI to supervise small banks, with operations and clients in diverse and remote areas.


Now, both of the above will require a candid and dispassionate analysis of RBI’s existing processes and its capacity, with regard to supervision of financial conglomerates (which could be considered as somewhat similar in characteristics to banks promoted by large industrial business groups) as well as NBFCs MFIs (which are thought to be akin to small banks). The argument being that if the RBI cannot effectively supervise large financial conglomerates, then, the question of it effectively ring-fencing and supervising banking entities belonging to large industrial business groups may be difficult. And hence, such licenses may not be accorded.


Likewise, the implied argument is that if the RBI cannot effectively supervise NBFC MFIs, then its ability to supervise similarly structured small banks (with diverse clients) is also a question mark. This would again result in the committee not recommending small banks from among the pool of applicants


Forgetting what I have said so far, read the following quote from a recent International Monetary Fund (IMF) assessment of RBI, as an institution. As the IMFi assessment notes,


“...The assessors identified a number of opportunities to better align current supervisory policies and procedures to international best practice. These include suggestions for improved coordination between the central office and the regional offices, increased interaction with auditors and private sector banks, more focused attention to banks’ internal risk-management models, a gradual move to more risk-based supervision and a revision of the RBI rotation policy to foster stronger supervisory expertise.”


Therefore, as noted earlier, the banking selection advisory panel would surely have to dispassionately and objectively analyse the capacity and weaknesses in the existing RBI supervision process, with regard to financial conglomerates in order to make a proper judgement on whether (or not) RBI’s strategy of ring-fencing banking entities of large industrial business groups, can be achieved in real time. This needs to be noted with great care!


And given the background of the RBI banking selection advisory panel in terms of it having a large number of past regulators as its members, the closeness (and ownership) of some of these regulatory member’s to the RBI’s own (past) supervisory process and the overall conflicts of interests prevalent (as identified earlier), I doubt very much as to whether the present banking selection advisory panel can indeed do an objective job of the same. 


This not all.


Table 2 provides an overview of the RBI banking selection advisory panel members in terms of their relationship to a specific event – the 2010 AP micro-finance crisis. And as you can see from the table below, three of the four members of the panel, were at some time or the other, associated with institutions involved in the 2010 AP micro-finance crisis. And two of these were regulators who had direct linkages to the (ineffective) regulatory/ supervisory processes that led to questionable decisions on the ground, which, in my opinion, also played a part in exacerbating the 2010 AP micro-finance crisis. Therefore, not to sound like a broken record, but here again, I doubt very much as to whether a proper objective judgement of RBI’s current processes and its capacity to effectively supervise smaller financial institutions can be made by the panel. And unless we have an honest assessment of this, the banking selection advisory panel will not be able to recommend whether (or not) small banks should indeed be licensed by the RBI.


Table 2: Relationship of the 4 Member RBI Banking Selection Advisory Panel to

The 2010 AP Micro-Finance Crisis

Other Aspects of RBI Banking

Selection Advisory Panel Member

(Based on Facts Available with Writer and

Best Available Judgement of the Writer)

Number of Members of the RBI Banking Selection Advisory  Who have This Attribute

Number of Members in RBI Banking Selection Advisory Panel with Specific Attribute as a proportion of

Total Panel Members

  1. Occupied a key regulatory position during the 2010 AP micro-finance crisis or just prior to that (adjusted for number of regulators)



  1. Tenure as regulator witnessed serious regulatory and supervisory failure, at least in terms of not spotting and acting on governance and related problems with NBFC MFIs associated with the 2010 AP micro-finance crisis. This has been adjusted for number of regulators in the panel, which is three


Regulatory/supervisory failure was subsequently vindicated by: a) self-admittance by a regulatory superior (as high as former Governor of RBI, Dr YV Reddy); b) an enquiry ordered by the same regulatory authority (SEBI, in which the concerned member served officially as Chairman or in another capacity); and c) an enquiry ordered by another regulatory authority (IRDA).



  1. Dealt closely with institutions that were at the centre of the 2010 AP micro-finance crisis or previous micro-finance crisis like the 2006 AP micro-finance crisis or 2009 Kolar micro-finance crisis. A key point to note is that these crises resulted in large scale exclusion of clients in India




Now given the above, it is clear that the banking selection advisory panel has members with significant conflicts of interest and therefore, it would appropriate for the RBI to go in for a comprehensive re-organisation of the banking selection advisory panel to exclude members with even the slightest conflict of interest and include those with no apparent conflicts. Also, re-organisation of the panel can be made once the recommendations of the Hon Parliamentary Standing Committee on Finance (PSCF) become available – in fact, media reports suggest that this PSCF report should be available very soon.


All these apart, the above discussion raises some very serious issues with regard to conflicts of interests at central banks like the RBI.


First, would be worthwhile to know whether any of the above conflicts have been disclosed by (any of the) concerned members and/or recognised officially at the RBI. Indeed, if the RBI had a formal policy on conflicts of interests and also a formal code of conduct for its board and committee members, this should have happened automatically.


Second, it would also be interesting to know whether such (conflicts of interests) policies and codes (of conduct) exist at RBI and whether disclosure has happened as per that! If indeed members had disclosed, then, how come these members were appointed to the banking selection advisory panel, ignoring the stated conflicts and disclosures.


And without any question, all of this would need to be clarified by the RBI as soon as possible.


To summarise, conflicts of interests need to be properly identified and managed at central banks and the Reserve Bank of India cannot be an exception to this very important rule of good governance. If conflict is not recognised promptly and handled wisely in each case, transparency becomes muddied and serious public mistrust may follow. Conflict of interest is thus a problem that attacks the very heart of good governance and needs to be resolved expeditiously!


And a caveat is in order here. There is a common misconception that conflict of interest only arises if a person has done something improper. The answer is a big NO! Perception is a very critical aspect to the notion of conflict of interest. It is not sufficient to simply believe or assert that the banking selection advisory panel members will not allow themselves to be influenced in any way by their private interest. They must also be seen to avoid situations where they might be perceived as being influenced by a private interest. Thus, a conflict of interest is not in itself misconduct; however, failing to recognise it or manage it appropriately could, at best, be considered improper or, at worst, be even regarded as potentially unlawful behaviour, depending on the country and context.


One final comment I would like to make. Responsiveness, integrity, impartiality, and accountability are four of the key values critical for a central bank like the RBI. And all of these are threatened by conflicts of interest. Thus, the RBI, as the premier institution that governs the financial sector in India, must surely set appropriate standards and benchmarks regarding conflicts of interests and take swift appropriate action, to eliminate them, as and when they become apparent. I am indeed confident that the RBI will act in the best traditions of its great institutional history!

i India: Financial Sector Assessment Program—Detailed Assessments Report on Basel Core Principles for Effective Banking Supervision by IMF Country report, August 2013


(Ramesh S Arunachalam has over two decades of strong grass-roots and institutional experience in rural finance, MSME development, agriculture and rural livelihood systems, rural and urban development and urban poverty alleviation across Asia, Africa, North America and Europe. He has worked with national and state governments and multilateral agencies. His book—Indian Microfinance, The Way Forward—is the first authentic compendium on the history of microfinance in India and its possible future.)




Sucheta Dalal

3 years ago

Actually, in the context of what Ramesh Arunachalam has written and Mr Kini commented. This article that I wrote in 2011 is pertinent

nagesh kini

3 years ago

It has to begin right from the top!
My RTI query on who appoints Directors on the RBI Central Board has been shunted between RBI and MOF.
There is a Director for 17 long years!
Why appoint the Nachiket Mor Committee when Damodaran and Justice Balakrishnan equally "High Powered" Committees have dealt with almost identical issues earlier.
They appoint the same names, are there no other competent experts outside the same charmed circle to go on Bharat Darshans?


Sucheta Dalal

In Reply to nagesh kini 3 years ago

It is now over 19 years and will soon be 20!!

But nobody in India wants to take this issues us with any seriousness. In fact, if you dare to raise common-sense principles of good governance it is viewed as personal agenda or enmity. In fact, I have very high regard for Mr Y H Malegam. But how, by any standards is it okay for him to be on the board for 20 years?
He is himself on various governance committees including the FSLRC. Shouldn't he himself step down sometime?
Do read:

Ramesh S Arunachalam

In Reply to nagesh kini 3 years ago

Very interesting sir! Old Boys network I guess! I knew that there was some one servging his 4th term but not aware of 17 years. That is just over 1/3rd my age sir! I in fact raised the question of whether we cannot find 12 unrelated competent people from a population of 120 crores. Pls see this article sir and thanks again for your insightful comments. Will provide a detailed reply on legal issues related to your comment above also sir

nagesh kini

In Reply to Ramesh S Arunachalam 3 years ago

Both Sucheta and I are aware of the name of the Director for 17years!

Ramesh S Arunachalam

In Reply to nagesh kini 3 years ago

I think I can guess sir! But I think you have a raised a very important issue and this pertains to the entire board.

Who can become a member of RBI board?
Who should be allowed to become a member of RBI board and the like
and so on.

Thanks sir!

Ramesh S Arunachalam

3 years ago

The problem with corporate governance is that it needs to be practiced. That is where many institutions/organisations fall short but I am really hopeful that the RBI will walk the talk

Yerram Raju Behara

3 years ago

Vested interests and hidden agenda in the appointment of either Working Groups or Committees or Board positions is the root cause of improper regulation and good governance requires their avoidance. This would require proper understanding and appreciation of the philosophy of corporate governance more than the rules. In regulatory institutions generally it is the top four or five on the Supervisory Board who take a call on such appointments. They have all ascended to the position because of their proven knowledge and skills and their capability to influence the regulatory system to deliver the best for financial stability and to arrest systemic risks. They must have at that age and service developed some mental blocks and some inflexibility, which is likely to lead to the type of risks that the regulator got into now and these are absolutely avoidable.

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)