Economy
Subbarao says tight monetary stance to offset fiscal slackness

The Indian government aims to bring down the fiscal deficit to Rs5.13 lakh crore or 5.1% of GDP in the current fiscal

New York: Highlighting the need for fiscal consolidation, Reserve Bank of India (RBI) Governor D Subbarao has said the central bank's tight monetary stance is directed towards offsetting fiscal slackness, reports PTI.

 

"RBI (is) having to take on a tight monetary stance to offset fiscal slackness," he said Tuesday while delivering a lecture at Cornell University on 'India in a Globalizing World: Some Policy Dilemmas'.

 

RBI raised policy rate 13 times between March 2010 and October 2011 in its bid to bring down inflation. It, thus, increased interest rate by 3.75% during that period.

 

In its last policy review in July, RBI chose to keep interest rate unchanged citing inflationary pressure.

 

In 2011-12, the fiscal deficit had ballooned to 5.76% of GDP on account of high fuel subsidy outgo.

 

The government aims to bring down the fiscal deficit- the gap between expenditure and revenue collection - to Rs5.13 lakh crore or 5.1% of GDP in the current fiscal.

 

Terming fiscal deficit as structural issue, Subbarao said "we have fiscal deficit in the face of current budget (revenue) deficit, implying borrowing is being used for consumption expenditure".

 

"Political economy - including federalism - challenges in reducing fiscal deficit," the RBI governor said.

 

Analysts believe that fiscal deficit could breach 6% mark in 2012-13 in view of rising oil, food and fertiliser subsidy bills and lower revenue realisation due to concerns of economic slowdown.

 

For the April-June period, the fiscal deficit rose to Rs1.9 lakh crore, or 37.1% of the 2012-13 target.

 

Subbarao said fiscal deficit is bad for a number of reasons as it also exacerbates inflation. "Even as investment has moderated, consumption remained strong benefitting from fiscal expansion. Fiscal deficit is adding to consumption demand," he said.

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RBI allows non-residents to provide non-fund based guarantees

The move would facilitate business relationship between non-residents and local businessmen

Mumbai: The Reserve Bank of India has allowed non-residents to provide guarantee for non-fund based activities to residents, a move that would facilitate business relationship between non-residents and local businessmen, reports PTI.

 

Earlier, this facility of providing guarantee by non-residents was available for rupee loans only.

 

"...it has been decided to extend the facility of non-resident guarantee under the general permission for non-fund based facilities (such as Letters of Credit/guarantees/Letter of Undertaking (LoU) /Letter of Comfort (LoC) ) entered into between two persons resident in India," RBI said in a notification.

 

It said there would be no change in method of discharge of liability by the non-resident guarantor under the guarantee and the subsequent repayment of the liability by the principal debtor.

 

The notification further said that a new reporting format would be introduced to capture such guarantees issued and invoked. The banks would be required to furnish the details of such transactions by 10th day of the following month.

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Citigroup agrees to pay $590 million to settle investor suit

The suit said Citigroup masked losses on its holdings of CDOs in 2006 and 2007 as the property market was collapsing, which helped it keep its share price high, above $47 in October 2007, before it plunged to below $2.00 in early 2009 after some $50 billion in asset writedowns

 
New York: Citigroup said that it had agreed to pay $590 million to settle a suit by investors who accused the bank of misleading them on its subprime mortgage-based security losses in 2007-2008, reports PTI.
 
The agreement settled the four-year-old class-action suit that arose from the collapse of the US real estate market, which savaged the bank's share price in part due to its heavy losses on collateralized debt obligations.
 
Investors who bought Citigroup shares between February 2007 and April 2008 accused the company of hiding its exposure to the CDO market, so they took heavy losses when it became public and the bank's shares plummeted in value.
 
Citigroup denied the charges, but said it was agreeing to settle the lawsuit to avoid any more legal costs.
 
"This settlement is a significant step toward resolving our exposure to claims arising from the period of the financial crisis," Citigroup said in a statement.
 
"Citi is fundamentally a different company today than at the beginning of the financial crisis. Citi has overhauled risk management, reduced risk exposures and, through our core businesses in Citicorp, we are focused on the basics of banking, leveraging our unique presence throughout the emerging and developed markets to serve our clients and the real economy." 
 
The suit said Citigroup masked losses on its holdings of CDOs in 2006 and 2007 as the property market was collapsing.
 
That helped keep its share price high, above $47 in October 2007, before it plunged to below $2.00 in early 2009 after some $50 billion in asset writedowns.
 
The settlement only covered a subset of the group of investors who originally sued. The suit previously included investors claiming losses between January 2004 and January 2009, but the claims outside those included in today's settlement were dismissed by the judge.
 
New York law firm Kirby McInerney LLP, which represented investors in the suit, called the settlement "a significant recovery relating to the subprime/credit crisis."
 

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