The outgoing year marks a watershed in the annals of the country’s apex bank as the Reserve Bank of India (RBI) turned out to be a tussling ground for its governor and the government.

The denouement came when the soft, scholarly and self-effacing twenty-fourth governor of the central bank, Urjit Patel, called it quits on December 10 and the government lost little time in filling the vacancy with a retired career bureaucrat and Member Fifteenth Finance Commission, Shaktikanta Das.

In a written reply to a query, Minister of State for Finance Shiv Pratap Shukla, conceded in the Lok Sabha on December 14 that the “government asked RBI for a review of its Economic Capital Framework (ECF) adopted in 2016… the board has decided to constitute an Expert Committee to examine the ECF, the membership of the terms of reference of which will be jointly determined by the government and the RBI”.&nbsp;

It needs to be noted that the erstwhile governor Patel stuck to his guns in not yielding an inch in the governing structure and economic policy framework that would translate into more access to the government to RBI’s surplus reserves of Rs 9.3 lakh crore.

This is all the more so when the RBI has the big mandate to keep inflation at four per cent within a band of plus/minus one per cent. So any leeway or access to the surplus funds parked with the banking regulator being extended to the government especially at a time when the nation is going to the mega polls in 2019, is bound to goad it to splurge on goodies and other populist schemes that would only stoke and fuel inflationary fires before long. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;

Though other weighty issues such as credit and liquidity being made reasonably available to the real sectors of the economy and at an affordable cost, the central bank is seized of the problems and is taking steps to ensure that credit delivery to the vital sectors is ensured through various ongoing measures it had kept unveiling from time to time.&nbsp;

RBI data reveals that the banking system’s non-food credit growth, which touched a nadir to 7-8 per cent in the three years to October 2017 (when the RBI cracked the whip to cleanse the stable of sore NPAs), returned to double-digit growth between October 2017 to October 2018 at 13 per cent.

The arrival of a bureaucrat to the RBI as its top man is coterminous with the efforts of the BJP-led NDA government to revive the fortunes of the slowing economy. For Shaktikanta Das, who was instrumental in altering the industrial landscape of Tamil Nadu as the Industries Secretary in two spells, his elevation to the corner office of the central bank is bound to be keenly watched by wonks. He had worked in the Finance Ministry at various levels and was representing the government side in framing the inflation-targeting as the supreme remit of the RBI, besides being a vocal supporter of the controversial demonetisation policy of the government.

He has plates full of priority issues that range from RBI governance, transfer of RBI reserves to the government, systemic liquidity encompassing a window for distressed finance companies, relaxation of the February 12 circular, which hardened the norms for non-performing loans to allowing banks that are in the Prompt Corrective Action (PCA) category, to resume lending.&nbsp;

The first board meeting he presided over on December 14 was shorn of drama/trauma, confined to less than an hour by resolving to examine the issues further, review liquidity, credit delivery and economic situation.

As its next board meeting is in January 2019, Das must perforce have to balance his new avatar as a central banker with his quondam position as one from the other side of the ring, so that he is seen not abandoning the quest of his predecessor bureaucrat-turned RBI governors such as YV Reddy and D Subba Rao, who strove to ensure the autonomy, credibility and independence of the RBI even by demurring with their Finance Ministers in their own unobtrusive ways.

(This article was originally published on DNA. Read the <a href="https://www.dnaindia.com/analysis/column-shaktikanta-das-has-a-job-cut-out-for-himself-at-rbi-2699553">original article</a>)

(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)

The outgoing year marks a watershed in the annals of the country’s apex bank as the Reserve Bank of India (RBI) turned out to be a tussling ground for its governor and the government.

The outgoing year marks a watershed in the annals of the country’s apex bank as the Reserve Bank of India (RBI) turned out to be a tussling ground for its governor and the government. The denouement came when the soft, scholarly and self-effacing twenty-fourth governor of the central bank, Urjit Patel, called it quits on December 10 and the government lost little time in filling the vacancy with a retired career bureaucrat and Member Fifteenth Finance Commission, Shaktikanta Das. In a written reply to a query, Minister of State for Finance Shiv Pratap Shukla, conceded in the Lok Sabha on December 14 that the “government asked RBI for a review of its Economic Capital Framework (ECF) adopted in 2016… the board has decided to constitute an Expert Committee to examine the ECF, the membership of the terms of reference of which will be jointly determined by the government and the RBI”. It needs to be noted that the erstwhile governor Patel stuck to his guns in not yielding an inch in the governing structure and economic policy framework that would translate into more access to the government to RBI’s surplus reserves of Rs 9.3 lakh crore. This is all the more so when the RBI has the big mandate to keep inflation at four per cent within a band of plus/minus one per cent. So any leeway or access to the surplus funds parked with the banking regulator being extended to the government especially at a time when the nation is going to the mega polls in 2019, is bound to goad it to splurge on goodies and other populist schemes that would only stoke and fuel inflationary fires before long. Though other weighty issues such as credit and liquidity being made reasonably available to the real sectors of the economy and at an affordable cost, the central bank is seized of the problems and is taking steps to ensure that credit delivery to the vital sectors is ensured through various ongoing measures it had kept unveiling from time to time. RBI data reveals that the banking system’s non-food credit growth, which touched a nadir to 7-8 per cent in the three years to October 2017 (when the RBI cracked the whip to cleanse the stable of sore NPAs), returned to double-digit growth between October 2017 to October 2018 at 13 per cent. The arrival of a bureaucrat to the RBI as its top man is coterminous with the efforts of the BJP-led NDA government to revive the fortunes of the slowing economy. For Shaktikanta Das, who was instrumental in altering the industrial landscape of Tamil Nadu as the Industries Secretary in two spells, his elevation to the corner office of the central bank is bound to be keenly watched by wonks. He had worked in the Finance Ministry at various levels and was representing the government side in framing the inflation-targeting as the supreme remit of the RBI, besides being a vocal supporter of the controversial demonetisation policy of the government. He has plates full of priority issues that range from RBI governance, transfer of RBI reserves to the government, systemic liquidity encompassing a window for distressed finance companies, relaxation of the February 12 circular, which hardened the norms for non-performing loans to allowing banks that are in the Prompt Corrective Action (PCA) category, to resume lending. The first board meeting he presided over on December 14 was shorn of drama/trauma, confined to less than an hour by resolving to examine the issues further, review liquidity, credit delivery and economic situation. As its next board meeting is in January 2019, Das must perforce have to balance his new avatar as a central banker with his quondam position as one from the other side of the ring, so that he is seen not abandoning the quest of his predecessor bureaucrat-turned RBI governors such as YV Reddy and D Subba Rao, who strove to ensure the autonomy, credibility and independence of the RBI even by demurring with their Finance Ministers in their own unobtrusive ways. (This article was originally published on DNA. Read the original article) (Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)

Shaktikanta Das has a job cut out for himself at RBI

With the general elections expected to take place within the next six months, <a href="http://www.wionews.com/india-news/matter-on-rafael-deal-has-been-thouroughly-through-the-supreme-court-laid-to-rest-sitharaman-184062">Union Finance Minister Arun Jaitley</a> asserted that going forward, India cannot afford to have "fragile coalitions."

Addressing an annual gathering of the Federation of Federation of Indian Chambers of Commerce and Industry (FICCI) on Friday, Jaitley noted that the need of the hour was to formulate policies that have clarity, directional stability and decisive leadership, and establish a market economy with social consciousness for ensuring equitable growth.

"The next six months would see a rise in political rhetoric with voices which may not be the expression of the real intent. The need of the hour is continuation of sound policies as against transient populism. The immediate target should be one that spells out the recipe for the next two decades; for an India where further reforms would be the only constant for aspirational people whose attitude is for change and desire for a better quality of life," he said while addressing members of the industry body.

Jaitley further said that if the current growth rate and India's global position is retained, the country will be able to go beyond growth rate of 7-8 per cent. In order to achieve this, however, Jaitley said it is important to identify several unreformed sectors such as state road transportation, railways, dealing with urbanisation, focusing on science and technology and research.

"India has done extremely well in infrastructure areas such as aviation and ports and it must be ensured that these success stories are not converted into challenges for the economy," he added.

Amid reports of Urjit Patel stepping down as the Reserve Bank of India (RBI) governor over the central bank's alleged stifled autonomy, Jaitley clarified that the government was in no way trying to interfere in the autonomy of the central bank.

He further said he was unable to perceive how an elected, sovereign government which flags off issues of credit and liquidity could be construed as infringing on the autonomy of the institution.

"Autonomy is not synonymous with isolationism, and therefore, bringing issues of concern to the notice of the central bank should not be regarded as a hindrance to the autonomy of the RBI," Jaitley asserted.

A tiff between the RBI and the Centre allegedly ensued after RBI deputy Governor Viral Acharya earlier this year stressed on the need to ensure the central bank's independence.

On Thursday, former chief economic advisor Arvind Subramanian had opined that creative tension between the RBI and the Centre should exist in line with the autonomy of the central bank.

"We want autonomy and independence but along with communication and cooperation because both parts of the government (i.e RBI and government) have to work together as many of their objectives are common. There will be some objectives which are different and that's why we created RBI. They will never agree, they should never agree, there has to be a creative tension," he had said.

With the general elections expected to take place within the next six months, Union Finance Minister Arun Jaitley asserted that going forward, India cannot afford to have "fragile coalitions.

With the general elections expected to take place within the next six months, Union Finance Minister Arun Jaitley asserted that going forward, India cannot afford to have "fragile coalitions." Addressing an annual gathering of the Federation of Federation of Indian Chambers of Commerce and Industry (FICCI) on Friday, Jaitley noted that the need of the hour was to formulate policies that have clarity, directional stability and decisive leadership, and establish a market economy with social consciousness for ensuring equitable growth. "The next six months would see a rise in political rhetoric with voices which may not be the expression of the real intent. The need of the hour is continuation of sound policies as against transient populism. The immediate target should be one that spells out the recipe for the next two decades; for an India where further reforms would be the only constant for aspirational people whose attitude is for change and desire for a better quality of life," he said while addressing members of the industry body. Jaitley further said that if the current growth rate and India's global position is retained, the country will be able to go beyond growth rate of 7-8 per cent. In order to achieve this, however, Jaitley said it is important to identify several unreformed sectors such as state road transportation, railways, dealing with urbanisation, focusing on science and technology and research. "India has done extremely well in infrastructure areas such as aviation and ports and it must be ensured that these success stories are not converted into challenges for the economy," he added. Amid reports of Urjit Patel stepping down as the Reserve Bank of India (RBI) governor over the central bank's alleged stifled autonomy, Jaitley clarified that the government was in no way trying to interfere in the autonomy of the central bank. He further said he was unable to perceive how an elected, sovereign government which flags off issues of credit and liquidity could be construed as infringing on the autonomy of the institution. "Autonomy is not synonymous with isolationism, and therefore, bringing issues of concern to the notice of the central bank should not be regarded as a hindrance to the autonomy of the RBI," Jaitley asserted. A tiff between the RBI and the Centre allegedly ensued after RBI deputy Governor Viral Acharya earlier this year stressed on the need to ensure the central bank's independence. On Thursday, former chief economic advisor Arvind Subramanian had opined that creative tension between the RBI and the Centre should exist in line with the autonomy of the central bank. "We want autonomy and independence but along with communication and cooperation because both parts of the government (i.e RBI and government) have to work together as many of their objectives are common. There will be some objectives which are different and that's why we created RBI. They will never agree, they should never agree, there has to be a creative tension," he had said.

India cannot function with fragile coalitions in future: Arun Jaitley

The board of the Reserve Bank of India said on Friday it had deliberated on the governance framework of the central bank and decided the matter requires "further examination".

The governance issue was a key part of the board meeting's agenda as the government wanted to have a greater say in the crucial regulatory decisions of the central bank through its board nominees.

The meeting, which wrapped up in less than four hours on Friday compared with the previous two meetings that lasted nine hours, indicated a likely smoother ride ahead for the central bank and the government under new RBI Governor Shaktikanta Das.

"The board deliberated on the governance framework of the Reserve Bank and it was decided that the matter required further examination," the RBI said in a statement.

The governance agenda included re-constituting or reviewing the sub-committees of the board which make regulatory decisions, in a bid to curb the RBI's unilateral decision-making powers. Currently, the RBI decides the regulatory and operational issues of banks and the board is informed later.

Das' bureaucratic links are expected to mend a rift between the government and the central bank that had widened sharply under his predecessor Urjit Patel, but the pressure to have greater control over the RBI's regulatory power through the board is likely to continue.

OTHER ISSUES

The board also reviewed global and domestic challenges, liquidity and credit delivery and currency management, the RBI said in the release without giving further details.

There were some expectations that the RBI might come up with measures to ease liquidity further following the government's demands.

Prime Minister Narendra Modi's government is keen to boost the economy ahead of general elections that must be held by May. Modi's ruling Hindu nationalist Bharatiya Janata Party's need for support from the RBI has become more imperative after the government lost all five crucial states and relinquished power in three of them this week.

Defending the government's demands, Finance Minister Arun Jaitley told ET Now on Thursday there was a need to boost credit and liquidity, and bringing up these issues with the central bank did not mean it was infringing upon the RBI's autonomy.

"RBI and government's difference has to be respected," Jaitley told ET Now on Thursday.

The government has been persistent with its demands for more liquidity, relaxation of lending curbs to help indebted state banks and a greater share of the RBI's excess capital reserves.

The continuous pressure deepened the rift between the RBI and government, which eventually led to Patel's shocking resignation earlier this week.

However, Das, who has been a bureaucrat for nearly four decades, is deft at building consensus and has promised to be more consultative, in contrast to Patel's taciturn nature and his unwillingness to engage often with stakeholders.

The board of the Reserve Bank of India said on Friday it had deliberated on the governance framework of the central bank and decided the matter requires "further examination".

The board of the Reserve Bank of India said on Friday it had deliberated on the governance framework of the central bank and decided the matter requires "further examination". The governance issue was a key part of the board meeting's agenda as the government wanted to have a greater say in the crucial regulatory decisions of the central bank through its board nominees. The meeting, which wrapped up in less than four hours on Friday compared with the previous two meetings that lasted nine hours, indicated a likely smoother ride ahead for the central bank and the government under new RBI Governor Shaktikanta Das. "The board deliberated on the governance framework of the Reserve Bank and it was decided that the matter required further examination," the RBI said in a statement. The governance agenda included re-constituting or reviewing the sub-committees of the board which make regulatory decisions, in a bid to curb the RBI's unilateral decision-making powers. Currently, the RBI decides the regulatory and operational issues of banks and the board is informed later. Das' bureaucratic links are expected to mend a rift between the government and the central bank that had widened sharply under his predecessor Urjit Patel, but the pressure to have greater control over the RBI's regulatory power through the board is likely to continue. OTHER ISSUES The board also reviewed global and domestic challenges, liquidity and credit delivery and currency management, the RBI said in the release without giving further details. There were some expectations that the RBI might come up with measures to ease liquidity further following the government's demands. Prime Minister Narendra Modi's government is keen to boost the economy ahead of general elections that must be held by May. Modi's ruling Hindu nationalist Bharatiya Janata Party's need for support from the RBI has become more imperative after the government lost all five crucial states and relinquished power in three of them this week. Defending the government's demands, Finance Minister Arun Jaitley told ET Now on Thursday there was a need to boost credit and liquidity, and bringing up these issues with the central bank did not mean it was infringing upon the RBI's autonomy. "RBI and government's difference has to be respected," Jaitley told ET Now on Thursday. The government has been persistent with its demands for more liquidity, relaxation of lending curbs to help indebted state banks and a greater share of the RBI's excess capital reserves. The continuous pressure deepened the rift between the RBI and government, which eventually led to Patel's shocking resignation earlier this week. However, Das, who has been a bureaucrat for nearly four decades, is deft at building consensus and has promised to be more consultative, in contrast to Patel's taciturn nature and his unwillingness to engage often with stakeholders.

RBI board seeks more discussion on governance under new boss

A day after Urjit Patel resigned as RBI Governor, Niti Aayog Vice Chairman Rajiv Kumar said the central bank's institutional capabilities are 'very strong' and it will do whatever is required for the markets and economy.

Kumar further said although Patel has done an amazing work in the last two years as RBI Governor, the functioning of the central bank is not dependent on any particular individual.

"RBI's institutional capabilities are very strong and they will do whatever is required for the markets and economy. The fact is that RBI itself is such a professional institution, and such a long-standing institution that you know, the business will continue," Kumar said in New Delhi on Tuesday.

Patel, who had a run-in with the government over autonomy of the central bank, resigned as RBI governor on Monday, citing personal reasons.

The Niti Aayog vice chairman also assured that the government will do whatever is required to continue its business as usual.

"Patel has done an amazing work in the last two years...But RBI is not dependent on any one particular individual," Kumar said.

Commenting of weakening of the rupee after Patel's resignation, Kumar said: "The government also, I am sure, is seized of the matter and will take care whichever way it's possible."

The rupee on Tuesday plunged by a significant 110 paise in early trade as domestic equities saw heavy sell-off amid crucial state election results and the unexpected resignation of Reserve Bank Governor Urjit Patel.

A day after Urjit Patel resigned as RBI Governor, Niti Aayog Vice Chairman Rajiv Kumar said the central bank's institutional capabilities are 'very strong' and it will do whatever is required for the markets and economy.

A day after Urjit Patel resigned as RBI Governor, Niti Aayog Vice Chairman Rajiv Kumar said the central bank's institutional capabilities are 'very strong' and it will do whatever is required for the markets and economy. Kumar further said although Patel has done an amazing work in the last two years as RBI Governor, the functioning of the central bank is not dependent on any particular individual. "RBI's institutional capabilities are very strong and they will do whatever is required for the markets and economy. The fact is that RBI itself is such a professional institution, and such a long-standing institution that you know, the business will continue," Kumar said in New Delhi on Tuesday. Patel, who had a run-in with the government over autonomy of the central bank, resigned as RBI governor on Monday, citing personal reasons. The Niti Aayog vice chairman also assured that the government will do whatever is required to continue its business as usual. "Patel has done an amazing work in the last two years...But RBI is not dependent on any one particular individual," Kumar said. Commenting of weakening of the rupee after Patel's resignation, Kumar said: "The government also, I am sure, is seized of the matter and will take care whichever way it's possible." The rupee on Tuesday plunged by a significant 110 paise in early trade as domestic equities saw heavy sell-off amid crucial state election results and the unexpected resignation of Reserve Bank Governor Urjit Patel.

RBI's institutional capabilities very strong: Niti Aayog's Rajiv Kumar on Urjit Patel's exit

The government on Tuesday appointed former finance secretary Shaktikanta Das as the new governor of Reserve Bank of India. He will have a three-year tenure.

Urjit Patel's shock resignation from the post on Monday following a policy tussle with the government had sent tremors through financial markets, and investors were keen to see the government quickly name a credible replacement.

Das, 61, is currently a member of the the finance commission, and one of India's serving G20 representatives. He was widely perceived to be a contender for the top job at the RBI after the exit of former governor Raghuram Rajan in 2016.

He previously served on the central bank's board. Das came under fire for his pro-demonetisation stance and he was the most visible and vocal bureaucrat at the time Modi withdrew the high-value bank notes in 2016.

Last year, Das criticised the methodology of global rating agencies and sought a sovereign rating upgrade. Das has worked extensively in the budget division under both Modi government and the previous coalition led by the Congress.

(With inputs from agencies)

The government on Tuesday appointed former finance secretary Shaktikanta Das as the new governor of Reserve Bank of India. He will have a three-year tenure. Urjit Patel's shock resignation from the post on Monday following a policy tussle with the government had sent tremors through financial markets, and investors were keen to see the government quickly name a credible replacement.

The government on Tuesday appointed former finance secretary Shaktikanta Das as the new governor of Reserve Bank of India. He will have a three-year tenure. Urjit Patel's shock resignation from the post on Monday following a policy tussle with the government had sent tremors through financial markets, and investors were keen to see the government quickly name a credible replacement. Das, 61, is currently a member of the the finance commission, and one of India's serving G20 representatives. He was widely perceived to be a contender for the top job at the RBI after the exit of former governor Raghuram Rajan in 2016. He previously served on the central bank's board. Das came under fire for his pro-demonetisation stance and he was the most visible and vocal bureaucrat at the time Modi withdrew the high-value bank notes in 2016. Last year, Das criticised the methodology of global rating agencies and sought a sovereign rating upgrade. Das has worked extensively in the budget division under both Modi government and the previous coalition led by the Congress. (With inputs from agencies)

Shaktikanta Das appointed new RBI governor after Urjit Patel's exit

RSS ideologue and an independent director on RBI board S Gurumurthy Monday described the resignation of Urjit Patel as a setback to the convergence that the central bank and the government were reaching on contentious issues.

He termed Patel's resignation as "shock" and said he will be missed.

"Surprised at the news that RBI governor has resigned," he said in a tweet.&nbsp;

The November 19 board meeting of the RBI was held in "such cordial atmosphere" that the resignation comes as a "shock", Gurumurthy said.&nbsp;

He further stressed that all directors on the board said media had created a wrong perception, while inside it was totally different.&nbsp;

That makes the development even more surprising, the swadeshi ideologue said.

"I enjoyed several hours of personal discussions with him where we found large areas of agreement as well as mutually understandable disagreement. His resignation is indeed setback to the effects of the convergence of views that was taking place. We will miss him," he said in another tweet.

Patel, who faced the possibility of an unprecedented action from the government over differences on a variety of issues, Monday resigned from his job citing personal reasons.&nbsp;

RSS ideologue and an independent director on RBI board S Gurumurthy Monday described the resignation of Urjit Patel as a setback to the convergence that the central bank and the government were reaching on contentious issues.

RSS ideologue and an independent director on RBI board S Gurumurthy Monday described the resignation of Urjit Patel as a setback to the convergence that the central bank and the government were reaching on contentious issues. He termed Patel's resignation as "shock" and said he will be missed. "Surprised at the news that RBI governor has resigned," he said in a tweet. The November 19 board meeting of the RBI was held in "such cordial atmosphere" that the resignation comes as a "shock", Gurumurthy said. He further stressed that all directors on the board said media had created a wrong perception, while inside it was totally different. That makes the development even more surprising, the swadeshi ideologue said. "I enjoyed several hours of personal discussions with him where we found large areas of agreement as well as mutually understandable disagreement. His resignation is indeed setback to the effects of the convergence of views that was taking place. We will miss him," he said in another tweet. Patel, who faced the possibility of an unprecedented action from the government over differences on a variety of issues, Monday resigned from his job citing personal reasons.

'Surprised', says RBI Independent Director Gurumurthy on Patel's resignation

The Reserve Bank is likely to maintain status-quo on interest rate in the upcoming monetary policy review on December 5 despite moderation in economic growth and easing inflation, opined experts.

After back-to-back hikes since June, the RBI had kept interest rates unchanged in the previous policy review in October, surprising markets that had expected a rate hike to support the tumbling rupee and combat inflationary pressures from high oil prices.

The repo rate, at which RBI lends to other banks, was left unchanged at 6.50 per cent.

The six-member Monetary Policy Committee (MPC), headed by RBI Governor Urjit Patel, will meet for three days starting December 3 for the fifth bi-monthly monetary policy review of the current financial year.

The MPC's decision will be announced in the afternoon of December 5.

Since the previous policy announcement, the rupee has appreciated against the US dollar and moved above the psychologically crucial mark of 70.

Global crude oil prices too have softened significantly, slipping below USD 60 per barrel from USD 86.

However, India's economic growth slowed to 7.1 per cent in the September quarter after peaking to an over two-year high in the first three months of this fiscal, as consumption demand moderated and farm sector displayed signs of weakness.

The growth in Gross Domestic Product (GDP) in July-September is the lowest in three quarters but better than 6.3 per cent in the same period of the previous year.

The Indian economy had grown by 8.2 per cent in the first quarter of the current fiscal year that began in April, according to data released by the Central Statistics Office (CSO).

Kotak Research said the MPC in its last policy had estimated inflation at 3.9-4.5 per cent in the second half of the fiscal and 4.8 per cent in the first quarter of next year.&nbsp;

It expects the inflation at 2.9-4.3 per cent in the second half of the fiscal and 4.5 per cent in the first quarter of 2019-20.&nbsp;

"The softer-than-expected inflation prints are on the back of benign food inflation, especially as most Kharif crop prices remain well below the MSP prices.&nbsp;

"While softer retail fuel prices will push core inflation lower, there will be a significant divergence from headline inflation mainly on the back of higher prices of education and health," Kotak Research said, adding that it expects RBI to maintain status-quo.

Devendra Kumar Pant, Chief Economist, India Ratings and Research (Fitch Group), said 2018-19 may still end up with a GDP growth of 7.3 per cent and "RBI may get the much-needed elbow room to keep the policy rate unchanged in the forthcoming bi-monthly policy review on 5 December 2018".

Retail inflation based on Consumer Price Index (CPI) fell to a one-year low of 3.31 per cent in October on the back of cheaper kitchen staples, fruits and protein-rich items, as per latest available data.

It was 3.7 per cent in September 2018 and 3.58 per cent in October 2017. The retail inflation number is the lowest since September 2017, when it touched 3.28 per cent. PTI

The Reserve Bank is likely to maintain status-quo on interest rate in the upcoming monetary policy review on December 5 despite moderation in economic growth and easing inflation, opined experts.

The Reserve Bank is likely to maintain status-quo on interest rate in the upcoming monetary policy review on December 5 despite moderation in economic growth and easing inflation, opined experts. After back-to-back hikes since June, the RBI had kept interest rates unchanged in the previous policy review in October, surprising markets that had expected a rate hike to support the tumbling rupee and combat inflationary pressures from high oil prices. The repo rate, at which RBI lends to other banks, was left unchanged at 6.50 per cent. The six-member Monetary Policy Committee (MPC), headed by RBI Governor Urjit Patel, will meet for three days starting December 3 for the fifth bi-monthly monetary policy review of the current financial year. The MPC's decision will be announced in the afternoon of December 5. Since the previous policy announcement, the rupee has appreciated against the US dollar and moved above the psychologically crucial mark of 70. Global crude oil prices too have softened significantly, slipping below USD 60 per barrel from USD 86. However, India's economic growth slowed to 7.1 per cent in the September quarter after peaking to an over two-year high in the first three months of this fiscal, as consumption demand moderated and farm sector displayed signs of weakness. The growth in Gross Domestic Product (GDP) in July-September is the lowest in three quarters but better than 6.3 per cent in the same period of the previous year. The Indian economy had grown by 8.2 per cent in the first quarter of the current fiscal year that began in April, according to data released by the Central Statistics Office (CSO). Kotak Research said the MPC in its last policy had estimated inflation at 3.9-4.5 per cent in the second half of the fiscal and 4.8 per cent in the first quarter of next year. It expects the inflation at 2.9-4.3 per cent in the second half of the fiscal and 4.5 per cent in the first quarter of 2019-20. "The softer-than-expected inflation prints are on the back of benign food inflation, especially as most Kharif crop prices remain well below the MSP prices. "While softer retail fuel prices will push core inflation lower, there will be a significant divergence from headline inflation mainly on the back of higher prices of education and health," Kotak Research said, adding that it expects RBI to maintain status-quo. Devendra Kumar Pant, Chief Economist, India Ratings and Research (Fitch Group), said 2018-19 may still end up with a GDP growth of 7.3 per cent and "RBI may get the much-needed elbow room to keep the policy rate unchanged in the forthcoming bi-monthly policy review on 5 December 2018". Retail inflation based on Consumer Price Index (CPI) fell to a one-year low of 3.31 per cent in October on the back of cheaper kitchen staples, fruits and protein-rich items, as per latest available data. It was 3.7 per cent in September 2018 and 3.58 per cent in October 2017. The retail inflation number is the lowest since September 2017, when it touched 3.28 per cent. PTI

RBI likely to keep interest rate unchanged on December 5

The Reserve Bank of India (RBI) estimates that Indian banks will have capacity to lend an extra 2.5 trillion rupees to 3.0 trillion rupees ($35 billion to $42 billion) over the next year after it decided to relax a deadline for lenders to boost capital ratios, two sources aware of discussions on the matter said on Tuesday.

<a href="http://www.wionews.com/business-economy/govt-to-continue-pressing-rbi-for-relaxing-norms-funds-sources-175945">Under pressure from Prime Minister Narendra Modi's government</a> to spur lending ahead of elections, the RBI agreed at its board meeting on Monday to extend a deadline for lenders to further lift capital conservation buffers by a year to March 31.

The relaxation will also reduce banks' capital requirements by about 300 billion to 350 billion rupees of capital, the two sources said, adding that the numbers were shared by the RBI at the board meeting.

The relaxation is a credit negative for Indian banks, international credit rating agency Moody's Investors Services said.

During Monday's nine-hour meeting, the board advised the central bank to act to support small businesses and give banks more time to step up capital norms. The government had been lobbying furiously for such moves for weeks.

"The RBI has agreed at the board meeting to allow banks to restructure the stressed loans to small and medium size companies," the first source told Reuters, though the central bank had not been so specific in its press statement on Monday.

NO FIREWORKS

The RBI's board meeting, usually a staid affair, came sharply into focus after top government officials pressed the RBI to ease lending and capital rules for banks, provide more liquidity to the shadow banking sector, support lending to small businesses and let the government use more of the RBI's surplus reserves to boost the economy.

"The broad concern that board members wanted the RBI to address was that no one should be starved of credit," the second source said.

The source said there were no fireworks at the meeting unlike during the run-up, when strains between the government and the central bank became public, leading to speculation that Governor Urjit Patel might resign.

"Everyone was sophisticated in their behaviour and everyone participated in the discussions. All the decisions were taken with everyone's consent," the source said.

Three topics were discussed at the meeting - lending to small businesses, capital buffers for banks and the RBI's reserve adequacy. Presentations were made by RBI as well as finance ministry officials.

The Modi government wants to boost growth as it is concerned that low crop prices and difficulties faced by small businesses may dent its prospects in numerous state polls over coming weeks, and a nationwide election due by May next year.

Seeking help to bolster the economy, government officials and one independent RBI director had called for strong actions by the central bank.

Unhappy over the persistent pressure on the RBI, Deputy Governor Viral Acharya warned last month that undermining central bank independence could be "catastrophic".

The next meeting on Dec. 14 will take up issues on liquidity, risk weights and capital provisioning for banks and governance of the RBI, the first source said.

"The RBI, the government and the independent board members - all of us are on the same page when it comes to doing what's the best for the country. The only difference in opinion is on how and how much," the source added.

The Reserve Bank of India (RBI) estimates that Indian banks will have capacity to lend an extra 2.5 trillion rupees to 3.0 trillion rupees ($35 billion to $42 billion) over the next year after it decided to relax a deadline for lenders to boost capital ratios, two sources aware of discussions on the matter said on Tuesday.

The Reserve Bank of India (RBI) estimates that Indian banks will have capacity to lend an extra 2.5 trillion rupees to 3.0 trillion rupees ($35 billion to $42 billion) over the next year after it decided to relax a deadline for lenders to boost capital ratios, two sources aware of discussions on the matter said on Tuesday. Under pressure from Prime Minister Narendra Modi's government to spur lending ahead of elections, the RBI agreed at its board meeting on Monday to extend a deadline for lenders to further lift capital conservation buffers by a year to March 31. The relaxation will also reduce banks' capital requirements by about 300 billion to 350 billion rupees of capital, the two sources said, adding that the numbers were shared by the RBI at the board meeting. The relaxation is a credit negative for Indian banks, international credit rating agency Moody's Investors Services said. During Monday's nine-hour meeting, the board advised the central bank to act to support small businesses and give banks more time to step up capital norms. The government had been lobbying furiously for such moves for weeks. "The RBI has agreed at the board meeting to allow banks to restructure the stressed loans to small and medium size companies," the first source told Reuters, though the central bank had not been so specific in its press statement on Monday. NO FIREWORKS The RBI's board meeting, usually a staid affair, came sharply into focus after top government officials pressed the RBI to ease lending and capital rules for banks, provide more liquidity to the shadow banking sector, support lending to small businesses and let the government use more of the RBI's surplus reserves to boost the economy. "The broad concern that board members wanted the RBI to address was that no one should be starved of credit," the second source said. The source said there were no fireworks at the meeting unlike during the run-up, when strains between the government and the central bank became public, leading to speculation that Governor Urjit Patel might resign. "Everyone was sophisticated in their behaviour and everyone participated in the discussions. All the decisions were taken with everyone's consent," the source said. Three topics were discussed at the meeting - lending to small businesses, capital buffers for banks and the RBI's reserve adequacy. Presentations were made by RBI as well as finance ministry officials. The Modi government wants to boost growth as it is concerned that low crop prices and difficulties faced by small businesses may dent its prospects in numerous state polls over coming weeks, and a nationwide election due by May next year. Seeking help to bolster the economy, government officials and one independent RBI director had called for strong actions by the central bank. Unhappy over the persistent pressure on the RBI, Deputy Governor Viral Acharya warned last month that undermining central bank independence could be "catastrophic". The next meeting on Dec. 14 will take up issues on liquidity, risk weights and capital provisioning for banks and governance of the RBI, the first source said. "The RBI, the government and the independent board members - all of us are on the same page when it comes to doing what's the best for the country. The only difference in opinion is on how and how much," the source added.

After RBI relaxes deadline, banks will be able to lend extra $35-42 billion: Sources

Former Union finance minister P Chidambaram Monday expressed happiness after the government "grudgingly acknowledged" the independence of the Reserve Bank of India.

"Glad that the Government has stepped back and grudgingly acknowledged the independence of the RBI," he said on Twitter.

"My guess is that the independent directors (at least most of them) realized that the government was on a perilous course and refused to go beyond giving advice to the RBI.

"There is no harm in a technical committee examining the issue of Reserves. At least the Reserves are safe until May 2019!," Chidambaram tweeted.

Signalling a temporary truce, the Reserve Bank and the government Monday agreed to refer to an expert committee the contentious issue of appropriate size of reserves that the RBI must hold, while restructuring of stressed loans of small businesses would be considered by the central bank.

The setting up of the committee, whose members will be decided by the government and the RBI, followed a marathon nine-hour long meeting of the central board that discussed threadbare issues that had brought the central bank and the Finance Ministry at loggerheads.&nbsp;

"The Board decided to constitute an expert committee to examine the ECF, the membership and terms of reference of which will be jointly determined by the Government of India and the RBI," the central bank said in a statement.

Former Union finance minister P Chidambaram Monday expressed happiness after the government "grudgingly acknowledged" the independence of the Reserve Bank of India.

Former Union finance minister P Chidambaram Monday expressed happiness after the government "grudgingly acknowledged" the independence of the Reserve Bank of India. "Glad that the Government has stepped back and grudgingly acknowledged the independence of the RBI," he said on Twitter. "My guess is that the independent directors (at least most of them) realized that the government was on a perilous course and refused to go beyond giving advice to the RBI. "There is no harm in a technical committee examining the issue of Reserves. At least the Reserves are safe until May 2019!," Chidambaram tweeted. Signalling a temporary truce, the Reserve Bank and the government Monday agreed to refer to an expert committee the contentious issue of appropriate size of reserves that the RBI must hold, while restructuring of stressed loans of small businesses would be considered by the central bank. The setting up of the committee, whose members will be decided by the government and the RBI, followed a marathon nine-hour long meeting of the central board that discussed threadbare issues that had brought the central bank and the Finance Ministry at loggerheads. "The Board decided to constitute an expert committee to examine the ECF, the membership and terms of reference of which will be jointly determined by the Government of India and the RBI," the central bank said in a statement.

Glad government acknowledged independence of RBI: Chidambaram

The board of the Reserve Bank of India (RBI) on Monday agreed to ease liquidity for the financial sector and increase credit to small businesses, two sources present at the meeting said.

The move comes in response to pressure from Prime Minister Narendra Modi's government which faces a general election by next May and is concerned that low farm prices and difficulties small businesses face in borrowing, may hurt its prospects with voters.

Some more contentious issues were kicked down the road to be discussed by newly formed committees, the sources said.

The government has been pressuring the RBI to reduce capital ratios for banks to speed up loans to small businesses. There are five key state elections in the next few weeks and a general election due by May.

"The meeting happened in a very cordial environment. Most of the issues were resolved in an amicable manner," a board member, who attended the meeting, told Reuters.

"A panel will be formed to work out a framework to determine the reserves requirements of the RBI and transfer surplus funds to the government," the board member said.

A litany of demands from top finance ministry officials prompted warnings from RBI Deputy Governor Viral Acharya last month that undermining central bank independence could be "catastrophic," triggering a public feud between the bank and the government.

Expert panel to examine economic capital framework

The Reserve Bank of India said on Monday it has decided to set up an expert panel to examine the economic capital framework of the central bank, in a move that could prompt a rethink of what constitutes adequate capital reserves for the central bank.

For weeks, government officials have been pressuring the RBI to accede to a range of demands, from easing lending curbs to handing over surplus reserves to the government.

The government and the central bank will jointly decide on the members of the panel and the scope of the panel, the RBI said in a statement late on Monday.

In addition, the RBI said its financial supervision board will examine the issue around easing of the prompt corrective action plan for some banks - another key of contention between the government and the central bank.

The board of the Reserve Bank of India (RBI) on Monday agreed to ease liquidity for the financial sector and increase credit to small businesses, two sources present at the meeting said.

The board of the Reserve Bank of India (RBI) on Monday agreed to ease liquidity for the financial sector and increase credit to small businesses, two sources present at the meeting said. The move comes in response to pressure from Prime Minister Narendra Modi's government which faces a general election by next May and is concerned that low farm prices and difficulties small businesses face in borrowing, may hurt its prospects with voters. Some more contentious issues were kicked down the road to be discussed by newly formed committees, the sources said. The government has been pressuring the RBI to reduce capital ratios for banks to speed up loans to small businesses. There are five key state elections in the next few weeks and a general election due by May. "The meeting happened in a very cordial environment. Most of the issues were resolved in an amicable manner," a board member, who attended the meeting, told Reuters. "A panel will be formed to work out a framework to determine the reserves requirements of the RBI and transfer surplus funds to the government," the board member said. A litany of demands from top finance ministry officials prompted warnings from RBI Deputy Governor Viral Acharya last month that undermining central bank independence could be "catastrophic," triggering a public feud between the bank and the government. Expert panel to examine economic capital framework The Reserve Bank of India said on Monday it has decided to set up an expert panel to examine the economic capital framework of the central bank, in a move that could prompt a rethink of what constitutes adequate capital reserves for the central bank. For weeks, government officials have been pressuring the RBI to accede to a range of demands, from easing lending curbs to handing over surplus reserves to the government. The government and the central bank will jointly decide on the members of the panel and the scope of the panel, the RBI said in a statement late on Monday. In addition, the RBI said its financial supervision board will examine the issue around easing of the prompt corrective action plan for some banks - another key of contention between the government and the central bank.

After marathon meeting, RBI board agrees to improve liquidity

As Prime Minister Narendra Modi’s government turns up the heat on the Reserve Bank of India (RBI) <a href="http://www.wionews.com/india-news/rbi-governor-urjit-patel-could-resign-on-november-19-report-175967">governor</a> to do its bidding ahead of next year’s general election it is getting the central bank’s board to take on a much more powerful role, according to government officials and board members.

Now stacked with government nominees who can be counted on to support the administration, the board is being transformed from having a passive advisory role into a body that can exert pressure for policy change. Some economists fear it could threaten the bank’s independence.

Two board members told Reuters that government pressure for easier lending policies is likely to become abundantly clear at Monday’s board meeting – the first to be held since the extent of a deep rift between the RBI and the government became public knowledge.

With the election due by May, and voters concerned about weak farm incomes and whether enough jobs are being created, Modi’s ruling Bharatiya Janata Party (BJP) is keen to stimulate the economy and sees the RBI’s hawkish stance as a barrier, said government officials and BJP allies.

The government has been pressing the Mumbai-based RBI and Governor Urjit Patel to accede to a range of demands that could help to boost demand. They include making it easier and cheaper for small businesses to borrow, easing lending curbs on 11 state-run banks which had debt and capital adequacy issues, and providing more liquidity to shadow lenders.

They also want the government to have access to surplus reserves the RBI has built up - money that could be used for the administration’s populist programmes including boosts to rural wages, fuel subsidies and buying crops at a guaranteed minimum price.

The RBI has hit back by questioning whether the government wanted to destroy its autonomy and warning that when this happened in Argentina in 2010, financial markets took fright.

The Finance Ministry and RBI spokesmen declined to comment for this story.

SPEARHEADING PUSH

In the past week there have been signs of an uneasy truce as some government officials indicated they didn’t want Patel to resign and would allow some issues to be kicked down the road.

But at the same time, Modi supporters have made it clear they want major policy change, and a senior finance ministry official said some government backers on the board had been given the green light to push hard at Monday’s meeting.

Spearheading that push is new board member S. Gurumurthy, a confidante of Modi’s. He is an accountant and columnist who was until recently co-convenor of the Swadeshi Jagaran Manch, the economic wing of the Hindu nationalist Rashtriya Swayamsevak Sangh, which is the fountainhead of the BJP.

In a speech last week, Gurumurthy lashed out at the RBI's restrictions on bank lending, saying it was damaging the economy.

"We are a bank-driven economy...in a bank-driven economy if you restrict the banks, you are restricting the economy, you are restricting the flow of funds into the economy," he said.

Under the colonial era RBI Act, the government can give the bank directions after consultations with the governor. That law establishes the primacy of the RBI board to do "all acts and things" subject to government directions. It also empowers New Delhi to dismiss any board member - including the governor.

In practice, the government has never invoked those sections of the act. For many decades, RBI governors have enjoyed operational freedom, though they have traditionally worked closely with the government, said an official directly aware of such consultations.

The board also doesn’t have direct influence over interest rate policy. In 2016, Modi agreed to establish a monetary policy committee to set interest rates based on whether India was meeting an inflation target. It consists of three RBI officials and three government-appointed members, with the RBI governor having the casting vote.

"NATIONALIST VISION"

Modi supporters are confident newly appointed members of the RBI board with a "nationalist vision" could over time press it to cut interest rates, transfer surplus funds to the government and ease bank lending curbs.

The RBI board will seek more accountability from the governor, said Ashwani Mahajan, who is co-convenor of the Swadeshi Jagaran Manch.

"Now the RBI will be functioning in a more prudent manner looking at the specific needs of the country," he said. Provided Modi gets re-elected, the RBI board could ensure a greater role for banks "in the social and economic transformation of the country", he added.

PACKED THE BOARD

Modi has packed the RBI board in the past few months with people with links to his party and economists who favour greater government influence over the RBI.

In August, Gurumurthy and Satish Marathe, a former banker who was in the student wing of the BJP, were named to the board.

And last month, the government appointed retired bureaucrat Revathy Iyer and Sachin Chaturvedi, head of a Delhi-based think tank, while removing Nachiket Mor, who was close to RBI officials.

It means that of 18 current members, five come from the government bureaucracy, two are finance ministry officials, and two have close links to Modi and the BJP. Four have a business background, and the other five are Patel and his four deputy governors.

Previously, the RBI would usually propose new board members or the government would at least consult the governor before nominating members. Under Modi, there has hardly been any consultation, said one former official directly aware of the appointment process.

In a sign of the marathon meeting that could be in store, the last board meeting on October 23 ran for eight hours, taking up only two out of 12 agenda items, one member said. The rest will be discussed on Monday, this person said.

As Prime Minister Narendra Modi’s government turns up the heat on the Reserve Bank of India (RBI) governor to do its bidding ahead of next year’s general election it is getting the central bank’s board to take on a much more powerful role, according to government officials and board members.

As Prime Minister Narendra Modi’s government turns up the heat on the Reserve Bank of India (RBI) governor to do its bidding ahead of next year’s general election it is getting the central bank’s board to take on a much more powerful role, according to government officials and board members. Now stacked with government nominees who can be counted on to support the administration, the board is being transformed from having a passive advisory role into a body that can exert pressure for policy change. Some economists fear it could threaten the bank’s independence. Two board members told Reuters that government pressure for easier lending policies is likely to become abundantly clear at Monday’s board meeting – the first to be held since the extent of a deep rift between the RBI and the government became public knowledge. With the election due by May, and voters concerned about weak farm incomes and whether enough jobs are being created, Modi’s ruling Bharatiya Janata Party (BJP) is keen to stimulate the economy and sees the RBI’s hawkish stance as a barrier, said government officials and BJP allies. The government has been pressing the Mumbai-based RBI and Governor Urjit Patel to accede to a range of demands that could help to boost demand. They include making it easier and cheaper for small businesses to borrow, easing lending curbs on 11 state-run banks which had debt and capital adequacy issues, and providing more liquidity to shadow lenders. They also want the government to have access to surplus reserves the RBI has built up - money that could be used for the administration’s populist programmes including boosts to rural wages, fuel subsidies and buying crops at a guaranteed minimum price. The RBI has hit back by questioning whether the government wanted to destroy its autonomy and warning that when this happened in Argentina in 2010, financial markets took fright. The Finance Ministry and RBI spokesmen declined to comment for this story. SPEARHEADING PUSH In the past week there have been signs of an uneasy truce as some government officials indicated they didn’t want Patel to resign and would allow some issues to be kicked down the road. But at the same time, Modi supporters have made it clear they want major policy change, and a senior finance ministry official said some government backers on the board had been given the green light to push hard at Monday’s meeting. Spearheading that push is new board member S. Gurumurthy, a confidante of Modi’s. He is an accountant and columnist who was until recently co-convenor of the Swadeshi Jagaran Manch, the economic wing of the Hindu nationalist Rashtriya Swayamsevak Sangh, which is the fountainhead of the BJP. In a speech last week, Gurumurthy lashed out at the RBI's restrictions on bank lending, saying it was damaging the economy. "We are a bank-driven economy...in a bank-driven economy if you restrict the banks, you are restricting the economy, you are restricting the flow of funds into the economy," he said. Under the colonial era RBI Act, the government can give the bank directions after consultations with the governor. That law establishes the primacy of the RBI board to do "all acts and things" subject to government directions. It also empowers New Delhi to dismiss any board member - including the governor. In practice, the government has never invoked those sections of the act. For many decades, RBI governors have enjoyed operational freedom, though they have traditionally worked closely with the government, said an official directly aware of such consultations. The board also doesn’t have direct influence over interest rate policy. In 2016, Modi agreed to establish a monetary policy committee to set interest rates based on whether India was meeting an inflation target. It consists of three RBI officials and three government-appointed members, with the RBI governor having the casting vote. "NATIONALIST VISION" Modi supporters are confident newly appointed members of the RBI board with a "nationalist vision" could over time press it to cut interest rates, transfer surplus funds to the government and ease bank lending curbs. The RBI board will seek more accountability from the governor, said Ashwani Mahajan, who is co-convenor of the Swadeshi Jagaran Manch. "Now the RBI will be functioning in a more prudent manner looking at the specific needs of the country," he said. Provided Modi gets re-elected, the RBI board could ensure a greater role for banks "in the social and economic transformation of the country", he added. PACKED THE BOARD Modi has packed the RBI board in the past few months with people with links to his party and economists who favour greater government influence over the RBI. In August, Gurumurthy and Satish Marathe, a former banker who was in the student wing of the BJP, were named to the board. And last month, the government appointed retired bureaucrat Revathy Iyer and Sachin Chaturvedi, head of a Delhi-based think tank, while removing Nachiket Mor, who was close to RBI officials. It means that of 18 current members, five come from the government bureaucracy, two are finance ministry officials, and two have close links to Modi and the BJP. Four have a business background, and the other five are Patel and his four deputy governors. Previously, the RBI would usually propose new board members or the government would at least consult the governor before nominating members. Under Modi, there has hardly been any consultation, said one former official directly aware of the appointment process. In a sign of the marathon meeting that could be in store, the last board meeting on October 23 ran for eight hours, taking up only two out of 12 agenda items, one member said. The rest will be discussed on Monday, this person said.

Govt pressure on RBI will become abundantly clear in Monday meeting: Board members

RBI Board member S Gurumurthy said Thursday that the government is not eyeing the RBI's surplus cash reserves but only looking at the formulation of a policy that would define how much of a cash reserve the bank needed to keep with it.&nbsp;

The RBI has a board meeting coming up on November 19 at which news reports had earlier said <a href="http://www.wionews.com/india-news/rbi-governor-urjit-patel-could-resign-on-november-19-report-175967">RBI Governor Urjit Patel might quit</a>. (The latest reports have since said that threat is off the table.)&nbsp;

The government and the RBI are currently embroiled in a protracted tiff over the central bank's cash reserves, with recent reports saying the government would like the central bank to hand those reserves over.&nbsp;

The government would also like the RBI to ease its lending norms so that more credit is available in the market which would in turn enourage growth.&nbsp;

On the matter of the cash reserves, Gurumurthy said Thursday that there were two studies on the matter — one suggesting 12 per cent reserves and the other 18.76 per cent reserves while the RBI, according to its latest balance sheets, currently holds a 27-28 per cent cash reserve.

On the matter of loosening lending norms, he said restricting banks in a bank-driven economy was like restricting the economy itself.

Gurumurthy made his comments in Delhi where he was delivering a lecture on "State of the Economy: India and the World" at the Vivekananda International Foundation (VIF).&nbsp;

Gurumurthy added Thursday that the current standoff between the government and the central bank was not a happy thing at all, and a part of India`s thinking ecosystem which depends on American ideas.&nbsp;

The government appointed Gurumurthy as a part-time director on the RBI Board in August this year.&nbsp;

Gurumurthy is the editor of Tamil political weekly Thuglaq and the co-convenor of the RSS affiliate Swadesh Jagran Manch.&nbsp; 
&nbsp;

RBI Board member S Gurumurthy said Thursday that the government is not eyeing the RBI's surplus cash reserves but only looking at the formulation of a policy that would define how much of a cash reserve the bank needed to keep with it.

RBI Board member S Gurumurthy said Thursday that the government is not eyeing the RBI's surplus cash reserves but only looking at the formulation of a policy that would define how much of a cash reserve the bank needed to keep with it. The RBI has a board meeting coming up on November 19 at which news reports had earlier said RBI Governor Urjit Patel might quit. (The latest reports have since said that threat is off the table.) The government and the RBI are currently embroiled in a protracted tiff over the central bank's cash reserves, with recent reports saying the government would like the central bank to hand those reserves over. The government would also like the RBI to ease its lending norms so that more credit is available in the market which would in turn enourage growth. On the matter of the cash reserves, Gurumurthy said Thursday that there were two studies on the matter — one suggesting 12 per cent reserves and the other 18.76 per cent reserves while the RBI, according to its latest balance sheets, currently holds a 27-28 per cent cash reserve. On the matter of loosening lending norms, he said restricting banks in a bank-driven economy was like restricting the economy itself. Gurumurthy made his comments in Delhi where he was delivering a lecture on "State of the Economy: India and the World" at the Vivekananda International Foundation (VIF). Gurumurthy added Thursday that the current standoff between the government and the central bank was not a happy thing at all, and a part of India`s thinking ecosystem which depends on American ideas. The government appointed Gurumurthy as a part-time director on the RBI Board in August this year. Gurumurthy is the editor of Tamil political weekly Thuglaq and the co-convenor of the RSS affiliate Swadesh Jagran Manch.

Govt wants policy on how much cash reserve RBI should have: Board member S Gurumurthy

With headline inflation expected to remain benign in the second half of the current fiscal, a report Monday said the Reserve Bank of India (RBI) is likely to keep repo rate, or the rate at which it lends to the banks, unchanged in the rest of the fiscal.

The consumer price index (CPI)-based inflation fell to a one-year low of 3.31 per cent in October 2018, from 3.7 per cent in September 2018 and 3.58 per cent in October 2017.

The retail inflation number is the lowest since September 2017 when it had touched 3.28 per cent.

"Given the strong focus of the MPC (monetary policy committee) on the headline inflation print, which should remain benign for the rest of second half of FY19, we see limited scope for rate hikes in the rest of FY19," the Kotak Economic Research report said.

It expects headline inflation to be in the range of 2.8-4.3 per cent.

It can be noted that the apex bank had maintained a status quo in its October policy review after two consecutive rounds of rate hikes of 0.25 per cent each. The repo rate currently stands at 6.5 per cent.

The report, however, said it remains watchful of the upside risks to inflation emanating from pass-through of minimum support prices (MSPs), adverse movement in crude oil prices, volatility in global financial markets, lagged impact of the rupee weakness on input prices, adverse implications from fiscal slippage and staggered impact of HRA increases by states and its second-round impact.

"However, the seemingly structurally benign food inflation along with softening growth should help in capping the upside pressures, thereby providing the RBI with the comfort of staying on pause mode in the foreseeable future," it noted.

CPI inflation eased to 3.31 per cent in October, primarily led by contraction of 0.9 per cent in food inflation amid a sharp drop in the prices of vegetables and pulses.

On a sequential basis, food inflation contracted by 0.5 per cent month-on-month after contracting by 1.1 per cent in September.

Prices of fruits, vegetables, pulses, sugar and eggs continued to fall on a monthly basis.

Core inflation (including petrol and diesel) hardened to 6.1 per cent in October from 5.7 per cent in September due to increase in prices in segments such as household goods and services, health and personal care.&nbsp;

With headline inflation expected to remain benign in the second half of the current fiscal, a report Monday said the Reserve Bank of India (RBI) is likely to keep repo rate, or the rate at which it lends to the banks, unchanged in the rest of the fiscal.

With headline inflation expected to remain benign in the second half of the current fiscal, a report Monday said the Reserve Bank of India (RBI) is likely to keep repo rate, or the rate at which it lends to the banks, unchanged in the rest of the fiscal. The consumer price index (CPI)-based inflation fell to a one-year low of 3.31 per cent in October 2018, from 3.7 per cent in September 2018 and 3.58 per cent in October 2017. The retail inflation number is the lowest since September 2017 when it had touched 3.28 per cent. "Given the strong focus of the MPC (monetary policy committee) on the headline inflation print, which should remain benign for the rest of second half of FY19, we see limited scope for rate hikes in the rest of FY19," the Kotak Economic Research report said. It expects headline inflation to be in the range of 2.8-4.3 per cent. It can be noted that the apex bank had maintained a status quo in its October policy review after two consecutive rounds of rate hikes of 0.25 per cent each. The repo rate currently stands at 6.5 per cent. The report, however, said it remains watchful of the upside risks to inflation emanating from pass-through of minimum support prices (MSPs), adverse movement in crude oil prices, volatility in global financial markets, lagged impact of the rupee weakness on input prices, adverse implications from fiscal slippage and staggered impact of HRA increases by states and its second-round impact. "However, the seemingly structurally benign food inflation along with softening growth should help in capping the upside pressures, thereby providing the RBI with the comfort of staying on pause mode in the foreseeable future," it noted. CPI inflation eased to 3.31 per cent in October, primarily led by contraction of 0.9 per cent in food inflation amid a sharp drop in the prices of vegetables and pulses. On a sequential basis, food inflation contracted by 0.5 per cent month-on-month after contracting by 1.1 per cent in September. Prices of fruits, vegetables, pulses, sugar and eggs continued to fall on a monthly basis. Core inflation (including petrol and diesel) hardened to 6.1 per cent in October from 5.7 per cent in September due to increase in prices in segments such as household goods and services, health and personal care.

RBI may keep repo rate unchanged for remainder of fiscal year: Report

Retail inflation eased to 3.31 per cent in October from 3.70 per cent which was recorded in September, news agency ANI reported on Monday.&nbsp;

Meanwhile, consumer inflation was at around 6.1 per cent in October, compared with around 5.8 per cent in September, Reuters reported. India's September industrial output grew 4.5 per cent.

Earlier in August, retail inflation cooled to an 11-month low of 3.69 per cent. Experts attributed the drop mainly to a fall in prices of kitchen items, including fruits and vegetables.

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Retail inflation reduces to 3.31% in October from 3.70% in September <a href="https://t.co/pGEAGgEiZt">pic.twitter.com/pGEAGgEiZt</a>
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The inflation based on the Consumer Price Index (CPI) stood at 4.17 per cent in July and 3.28 per cent in August 2017, news agency PTI reported. In October 2017, the CPI was recorded at 3.58 per cent.

The Reserve Bank of India has been mandated to keep retail inflation at 4 per cent level, with a margin of 2 per cent on either side.

(With inputs from agencies)&nbsp;

Retail inflation eased to 3.31 per cent in October from 3.70 per cent which was recorded in September, news agency ANI reported on Monday. Meanwhile, consumer inflation was at around 6.

Retail inflation eased to 3.31 per cent in October from 3.70 per cent which was recorded in September, news agency ANI reported on Monday. Meanwhile, consumer inflation was at around 6.1 per cent in October, compared with around 5.8 per cent in September, Reuters reported. India's September industrial output grew 4.5 per cent. Earlier in August, retail inflation cooled to an 11-month low of 3.69 per cent. Experts attributed the drop mainly to a fall in prices of kitchen items, including fruits and vegetables. Retail inflation reduces to 3.31% in October from 3.70% in September pic.twitter.com/pGEAGgEiZt — ANI (@ANI) November 12, 2018 × The inflation based on the Consumer Price Index (CPI) stood at 4.17 per cent in July and 3.28 per cent in August 2017, news agency PTI reported. In October 2017, the CPI was recorded at 3.58 per cent. The Reserve Bank of India has been mandated to keep retail inflation at 4 per cent level, with a margin of 2 per cent on either side. (With inputs from agencies)

Retail inflation cools to 3.31% in October, was at 3.70% in September

The current tussle between the Central Government and the Reserve Bank of India (RBI) has brought into focus the issue of autonomy of the central bank in operationalising its monetary policy. While the RBI wants to bring in more discipline into banks’ lending operations, the Centre wants a greater share of the RBI’s surplus and has also criticised the central bank for being too conservative on lending restrictions, thereby tightening liquidity especially for Non-Banking Finance Companies (NBFCs).

Central banks were initially opened as bankers to the government. They held the government’s tax revenues, non-tax revenues and loans. Over time, these banks were nationalised and brought fully under government control. In later years, it became evident that the central bank, being a banker to the government, had an information advantage over other banks. It could use that information advantage to regulate the activities of other banks to reduce possibilities of moral hazard and adverse selection – the two most important market failures in the financial sector. Even later, it evolved into a banker to the banks and a lender of last resort. By standing as a guarantee to other banks, the central bank brought trust into the banking system and reduced bank runs.

The RBI came into existence in 1935 based on the recommendations of the Hilton-Young Commission. It is governed by the Reserve Bank of India Act, 1934. Although it was initially owned by private shareholders, it was nationalised in 1949 after India’s Independence. Prior to the 1991 reforms, the RBI enjoyed very little autonomy vis-a-vis the government. It was primarily responsible for monetising the government budget deficit. At the same time, it was accused of keeping interest rates deliberately low to reduce the government’s interest payments. This period was therefore called the period of fiscal dominance.

Post the reforms of 1991, the RBI gained considerable autonomy. The automatic monetisation of the fiscal deficit was phased out between 1993 and 1997. The FRBM Act further gave statutory backing to this restricted application of monetization of debt. There was also a move towards market-determined tools like interest rates and open market operations (OMOs) for administering monetary policy, instead of statutory controls like the Cash Reserve Ratio (CRR).

The recent move towards inflation targeting is another attempt at granting more autonomy and accountability to the RBI. The RBI can now use any tool at its disposal to achieve an inflation rate of 2-6 per cent. However, it will be answerable for its failure to do so.

Yet, considerable issues remain to be resolved. First, the RBI manages the government’s debt and also sets the benchmark interest rates. This leads to a conflict of interest. Second, the RBI’s ability to regulate Public Sector Banks (PSBs) is limited by the fact that both the RBI and the PSBs are government owned and again, there is a conflict of interest. Finally, excessive focus on inflation targeting can make the RBI’s approach to monetary policy too conservative, hurting investment prospects.

Thus, there is an urgent need to resolve these issues. A committee of experts from the banking sector, RBI and the government can be constituted. 
 
(This article was originally published on DNA. Read the <a href="https://www.dnaindia.com/analysis/column-evolution-of-central-banking-in-india-2684415">original article</a>)

(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)

&nbsp;

The current tussle between the Central Government and the Reserve Bank of India (RBI) has brought into focus the issue of autonomy of the central bank in operationalising its monetary policy.

The current tussle between the Central Government and the Reserve Bank of India (RBI) has brought into focus the issue of autonomy of the central bank in operationalising its monetary policy. While the RBI wants to bring in more discipline into banks’ lending operations, the Centre wants a greater share of the RBI’s surplus and has also criticised the central bank for being too conservative on lending restrictions, thereby tightening liquidity especially for Non-Banking Finance Companies (NBFCs). Central banks were initially opened as bankers to the government. They held the government’s tax revenues, non-tax revenues and loans. Over time, these banks were nationalised and brought fully under government control. In later years, it became evident that the central bank, being a banker to the government, had an information advantage over other banks. It could use that information advantage to regulate the activities of other banks to reduce possibilities of moral hazard and adverse selection – the two most important market failures in the financial sector. Even later, it evolved into a banker to the banks and a lender of last resort. By standing as a guarantee to other banks, the central bank brought trust into the banking system and reduced bank runs. The RBI came into existence in 1935 based on the recommendations of the Hilton-Young Commission. It is governed by the Reserve Bank of India Act, 1934. Although it was initially owned by private shareholders, it was nationalised in 1949 after India’s Independence. Prior to the 1991 reforms, the RBI enjoyed very little autonomy vis-a-vis the government. It was primarily responsible for monetising the government budget deficit. At the same time, it was accused of keeping interest rates deliberately low to reduce the government’s interest payments. This period was therefore called the period of fiscal dominance. Post the reforms of 1991, the RBI gained considerable autonomy. The automatic monetisation of the fiscal deficit was phased out between 1993 and 1997. The FRBM Act further gave statutory backing to this restricted application of monetization of debt. There was also a move towards market-determined tools like interest rates and open market operations (OMOs) for administering monetary policy, instead of statutory controls like the Cash Reserve Ratio (CRR). The recent move towards inflation targeting is another attempt at granting more autonomy and accountability to the RBI. The RBI can now use any tool at its disposal to achieve an inflation rate of 2-6 per cent. However, it will be answerable for its failure to do so. Yet, considerable issues remain to be resolved. First, the RBI manages the government’s debt and also sets the benchmark interest rates. This leads to a conflict of interest. Second, the RBI’s ability to regulate Public Sector Banks (PSBs) is limited by the fact that both the RBI and the PSBs are government owned and again, there is a conflict of interest. Finally, excessive focus on inflation targeting can make the RBI’s approach to monetary policy too conservative, hurting investment prospects. Thus, there is an urgent need to resolve these issues. A committee of experts from the banking sector, RBI and the government can be constituted. (This article was originally published on DNA. Read the original article) (Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)

Evolution of central banking in India

Former Union finance minister&nbsp;P Chidambaram Sunday asked the Centre what was its "tearing hurry" to "fix" the capital framework of Reserve Bank of India when the ruling dispensation had just four months to complete the term.

In a series of tweets, the senior Congress leader slammed the government for allegedly seeking funds from the RBI despite claiming that its (Centre) fiscal math was correct.

"The NDA government has completed 4 years and 6 months of its term. It has effectively 4 months left. What is the tearing hurry to 'fix' the capital framework of RBI?" he asked.

Chidambaram said if the government did not need any more money this financial year, why was it "mounting pressure" on the central bank in the last four months of its tenure.&nbsp;

"Why did it keep silent for 4 years and 6 months?" he said.

The Congress leader said the government had claimed that its "fiscal math is correct" and "boasts" that it had given up Rs 70,000 crore of borrowing for 2018-19.

"If so, why does it need money from the reserves of RBI this year?" he questioned.&nbsp;

The central government had on Friday said it was discussing an "appropriate" size of capital reserves that the central bank must maintain, but denied seeking a massive capital transfer from the RBI.

The RBI has a massive Rs 9.59 lakh crore reserves and the government, if reports are to be believed, wants the central bank to part with a third of that fund -- an issue which along with easing of norms for weak banks and raising liquidity has brought the two at loggerheads in recent weeks.

Economic Affairs Secretary Subhash Chandra Garg took to Twitter on Friday to clarify that the government was not in any dire need of funds and that there was no proposal to ask the RBI to transfer Rs 3.6 lakh crore.

"There is no proposal to ask RBI to transfer (Rs) 3.6 or (Rs) 1 lakh crore, as speculated," he tweeted.&nbsp;

"Government's FD (fiscal deficit) in FY 2013-14 was 5.1%. From 2014-15 onwards, Government has succeeded in bringing it down substantially. We will end the FY 2018-19 with FD of 3.3 per cent.&nbsp;

Government has actually foregone (Rs) 70,000 crore of budgeted market borrowing this year," Garg said.

The official said the only proposal under discussion was to "fix appropriate economic capital framework of RBI".

Economic capital framework refers to the risk capital required by the central bank while taking into account different risks.&nbsp;

Former Union finance minister P Chidambaram Sunday asked the Centre what was its "tearing hurry" to "fix" the capital framework of Reserve Bank of India when the ruling dispensation had just four months to complete the term.

Former Union finance minister P Chidambaram Sunday asked the Centre what was its "tearing hurry" to "fix" the capital framework of Reserve Bank of India when the ruling dispensation had just four months to complete the term. In a series of tweets, the senior Congress leader slammed the government for allegedly seeking funds from the RBI despite claiming that its (Centre) fiscal math was correct. "The NDA government has completed 4 years and 6 months of its term. It has effectively 4 months left. What is the tearing hurry to 'fix' the capital framework of RBI?" he asked. Chidambaram said if the government did not need any more money this financial year, why was it "mounting pressure" on the central bank in the last four months of its tenure. "Why did it keep silent for 4 years and 6 months?" he said. The Congress leader said the government had claimed that its "fiscal math is correct" and "boasts" that it had given up Rs 70,000 crore of borrowing for 2018-19. "If so, why does it need money from the reserves of RBI this year?" he questioned. The central government had on Friday said it was discussing an "appropriate" size of capital reserves that the central bank must maintain, but denied seeking a massive capital transfer from the RBI. The RBI has a massive Rs 9.59 lakh crore reserves and the government, if reports are to be believed, wants the central bank to part with a third of that fund -- an issue which along with easing of norms for weak banks and raising liquidity has brought the two at loggerheads in recent weeks. Economic Affairs Secretary Subhash Chandra Garg took to Twitter on Friday to clarify that the government was not in any dire need of funds and that there was no proposal to ask the RBI to transfer Rs 3.6 lakh crore. "There is no proposal to ask RBI to transfer (Rs) 3.6 or (Rs) 1 lakh crore, as speculated," he tweeted. "Government's FD (fiscal deficit) in FY 2013-14 was 5.1%. From 2014-15 onwards, Government has succeeded in bringing it down substantially. We will end the FY 2018-19 with FD of 3.3 per cent. Government has actually foregone (Rs) 70,000 crore of budgeted market borrowing this year," Garg said. The official said the only proposal under discussion was to "fix appropriate economic capital framework of RBI". Economic capital framework refers to the risk capital required by the central bank while taking into account different risks.

What is govt's 'tearing hurry' to 'fix' RBI capital framework: Chidambaram

The government Friday said it is not seeking Rs 3.6 lakh crore capital from the Reserve Bank but is only in discussion for fixing appropriate economic capital framework of the central bank.

"Lot of misinformed speculation is going around in media. Government's fiscal math is completely on track. There is no proposal to ask RBI to transfer Rs 3.6 or 1 lakh crore, as speculated," Economic Affairs Secretary Subhash Chandra Garg tweeted.

He said the only proposal "under discussion is to fix appropriate economic capital framework of RBI."

Exuding confidence about government's fiscal math, he said, it will stick to the fiscal deficit target of 3.3 per cent for the current financial year ending March 31, 2019.

"Government's FD (fiscal deficit) in FY 2013-14 was 5.1%. From 2014-15 onwards, Government has succeeded in bringing it down substantially. We will end the FY 2018-19 with FD of 3.3%. Government has actually foregone 70,000 crore of budgeted market borrowing this year," he said.&nbsp;

The government Friday said it is not seeking Rs 3.6 lakh crore capital from the Reserve Bank but is only in discussion for fixing appropriate economic capital framework of the central bank.

The government Friday said it is not seeking Rs 3.6 lakh crore capital from the Reserve Bank but is only in discussion for fixing appropriate economic capital framework of the central bank. "Lot of misinformed speculation is going around in media. Government's fiscal math is completely on track. There is no proposal to ask RBI to transfer Rs 3.6 or 1 lakh crore, as speculated," Economic Affairs Secretary Subhash Chandra Garg tweeted. He said the only proposal "under discussion is to fix appropriate economic capital framework of RBI." Exuding confidence about government's fiscal math, he said, it will stick to the fiscal deficit target of 3.3 per cent for the current financial year ending March 31, 2019. "Government's FD (fiscal deficit) in FY 2013-14 was 5.1%. From 2014-15 onwards, Government has succeeded in bringing it down substantially. We will end the FY 2018-19 with FD of 3.3%. Government has actually foregone 70,000 crore of budgeted market borrowing this year," he said.

Government not seeking Rs 3.6 lakh crore from RBI: DEA Secretary

Keeping up the heat on the RBI, the government will continue to press the central bank to relax norms to boost lending and transfer at least a third of its Rs 9.6 lakh crore reserve, sources familiar with the discussions said.

In recent weeks, the <a href="http://www.wionews.com/india-news/rbi-governor-urjit-patel-could-resign-on-november-19-report-175967">rift between the RBI and the government</a> has been widening over various issues.

Recently, the government cited never-used before provisions of law that gives it powers to issue directions to the RBI on mattes of public interest to resolve certain issues.

Citing Section 7 of the RBI Act - an unprecedented move in the 80-year history of RBI - the government wants RBI Governor Urjit Patel to address three prime concerns. They pertain to transfer of surplus funds, easing of NPA norms to kickstart lending and support growth, and easing liquidity crisis facing non-banking finance companies (NBFCs), sources had said.

These issues may figure during the RBI's board meeting on November 19.

According to the sources, the government would continue to press the RBI to relax norms to boost lending and transfer at least a third of its Rs 9.6 lakh crore reserve.

The government wants the RBI to part with most of its profit as dividend. The central bank, however, feels that it needs to retain a share of profits to make its balance sheet stronger, as per media reports.

The government wants Rs 3.6 lakh crore of surplus to be transferred to it, the reports said.

In its attempt to clean up the banking system, the RBI introduced Prompt Corrective Action (PCA) framework that places curbs on lending, expanding branch network and dividend distribution on weak banks.

It has also mandated banks to declare a delinquent borrower even if payments were overdue by a day.

The government wants some of these strictures to be eased to kick start lending and support growth, the sources said.

One of the nominee director on RBI's Central Board S Gurumurthy has reportedly written to RBI Governor Urjit Patel regarding Deputy Governor Viral Acharya raising the issue of the bank's autonomy at a public event recently.

Sources had said that the RBI's board meeting on November 19 was pre-scheduled and routine. The last meeting of the board was held in October.

Apart from Patel and his four deputies, there are 13 nominated directors on the RBI's board.

The reports of rift between the RBI and the government surfaced last month following the Finance Ministry reportedly started discussion with the RBI under the never before used Section 7 of the RBI Act.

In a statement last week, the ministry said the RBI's autonomy is "essential" and will be "nurtured".

Last week, Economic Affairs Seceretary Subhash Chandra Garg and government nominee on the Board took an apparent dig at Acharya's 'wrath of financial markets' comment in a tweet saying vital indicators of the economy were showing improvement.

Acharya, in his much talked about speech last month, raised the issue of autonomy of the central bank and said that undermining the central bank's independence could be "potentially catastrophic".

"Governments that do not respect central bank independence will sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution; their wiser counterparts who invest in central bank independence will enjoy lower costs of borrowing, the love of international investors, and longer life spans," Acharya had said.

The deputy governor's comment had generated controversy, hinting at the growing rift between the government and the central bank.

Keeping up the heat on the RBI, the government will continue to press the central bank to relax norms to boost lending and transfer at least a third of its Rs 9.

Keeping up the heat on the RBI, the government will continue to press the central bank to relax norms to boost lending and transfer at least a third of its Rs 9.6 lakh crore reserve, sources familiar with the discussions said. In recent weeks, the rift between the RBI and the government has been widening over various issues. Recently, the government cited never-used before provisions of law that gives it powers to issue directions to the RBI on mattes of public interest to resolve certain issues. Citing Section 7 of the RBI Act - an unprecedented move in the 80-year history of RBI - the government wants RBI Governor Urjit Patel to address three prime concerns. They pertain to transfer of surplus funds, easing of NPA norms to kickstart lending and support growth, and easing liquidity crisis facing non-banking finance companies (NBFCs), sources had said. These issues may figure during the RBI's board meeting on November 19. According to the sources, the government would continue to press the RBI to relax norms to boost lending and transfer at least a third of its Rs 9.6 lakh crore reserve. The government wants the RBI to part with most of its profit as dividend. The central bank, however, feels that it needs to retain a share of profits to make its balance sheet stronger, as per media reports. The government wants Rs 3.6 lakh crore of surplus to be transferred to it, the reports said. In its attempt to clean up the banking system, the RBI introduced Prompt Corrective Action (PCA) framework that places curbs on lending, expanding branch network and dividend distribution on weak banks. It has also mandated banks to declare a delinquent borrower even if payments were overdue by a day. The government wants some of these strictures to be eased to kick start lending and support growth, the sources said. One of the nominee director on RBI's Central Board S Gurumurthy has reportedly written to RBI Governor Urjit Patel regarding Deputy Governor Viral Acharya raising the issue of the bank's autonomy at a public event recently. Sources had said that the RBI's board meeting on November 19 was pre-scheduled and routine. The last meeting of the board was held in October. Apart from Patel and his four deputies, there are 13 nominated directors on the RBI's board. The reports of rift between the RBI and the government surfaced last month following the Finance Ministry reportedly started discussion with the RBI under the never before used Section 7 of the RBI Act. In a statement last week, the ministry said the RBI's autonomy is "essential" and will be "nurtured". Last week, Economic Affairs Seceretary Subhash Chandra Garg and government nominee on the Board took an apparent dig at Acharya's 'wrath of financial markets' comment in a tweet saying vital indicators of the economy were showing improvement. Acharya, in his much talked about speech last month, raised the issue of autonomy of the central bank and said that undermining the central bank's independence could be "potentially catastrophic". "Governments that do not respect central bank independence will sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution; their wiser counterparts who invest in central bank independence will enjoy lower costs of borrowing, the love of international investors, and longer life spans," Acharya had said. The deputy governor's comment had generated controversy, hinting at the growing rift between the government and the central bank.

Govt to continue pressing RBI for relaxing norms, funds: Sources

The Central Information Commission (CIC) has issued a show-cause notice to RBI Governor Urjit Patel for "dishonouring" a Supreme Court judgment on disclosure of the wilful defaulters' list.

The CIC has also asked the Prime Minister's Office, the Finance Ministry and the Reserve Bank of India (RBI) to make public the letter of former RBI governor Raghuram Rajan on bad loans.

Irked over the denial of information on disclosure of names of wilful defaulters who have taken bank loans of Rs 50 crore and above by the RBI in spite of a Supreme Court order, the CIC has asked Patel to explain why a maximum penalty should not be imposed on him for "dishonouring" the court verdict, which had upheld a decision taken by then information commissioner Shailesh Gandhi, calling for disclosure of names of wilful defaulters.

Patel, speaking at the Central Vigilance Commission (CVC) on September 20, had said the guidelines on vigilance, issued by the CVC, were aimed at achieving greater transparency, promoting a culture of honesty and probity in public life and improving the overall vigilance administration in the organisations within its purview, the CIC pointed out.

"The commission feels that there is no match between what RBI governor and deputy governor say and their website regarding their RTI policy, and a great secrecy of vigilance reports and inspection reports is being maintained with impunity, in spite of the Supreme Court confirming the orders of the CIC in the Jayantilal case," Information Commissioner Sridhar Acharyulu said.

He concluded that it would not serve any purpose to punish the CPIO for this defiance, because he acted under the instructions of the top authorities.

"The commission considers the governor as the deemed PIO responsible for non-disclosure and defiance of Supreme Court orders and CIC orders and directs him to show cause why a maximum penalty should not be imposed on him for these reasons, before November 16," Acharyulu said.

He rejected the arguments of Santosh Kumar Panigrahy of the RBI that section 22 of the Right to Information (RTI) Act would not override various laws he quoted, prohibiting disclosure of names and details of wilful defaulters and hence, the RBI should be discharged from the obligations of disclosure.&nbsp;

"His contention that unless the above-referred enactments are repealed, the RBI cannot disclose the details of defaulters is also absurd," Acharyulu said.

He added that another contention of Panigrahy that the pendency of a PIL before the Supreme Court on the issue would prevent him from disclosure was also baseless as he did not present any interim order passed by the Supreme Court preventing the disclosure of names of wilful defaulters or against the proceedings before the CIC.

"These submissions of the RBI show that its legal wing did not bring to the notice of the CPIO that in the RBI vs Jayantilal N Mistry case, a Supreme Court bench consisting of M Y Eqbat and C Nagappan JJ, on December 16, 2015 [Transferred Cases (Civil) Nos. 91 to 101 of 2015], gave a landmark decision, upholding the direction of the CIC to disclose the inspection reports of the RBI and the names of wilful defaulters in many cases, rejecting all the above-referred contentions of the RBI," Acharyulu said.

The information commissioner said in that case, the counsel for the RBI had raised the same contentions, referring to the same cases referred by Panigrahy, and those were straightaway rejected by the Supreme Court.

"The commission finds no merit in hiding the names of, details and action against wilful defaulters of big bad loans worth hundreds of crores of rupees.

"The RBI shall disclose the bad debt details of defaulters worth more than Rs 1,000 crore at the beginning, of Rs 500 crore or less at a later stage within five days and collect such information from the banks in due course to update their voluntary disclosures from time to time as a practice under section 4(1)(b) of the RTI Act," he said.

Acharyulu asked the RBI governor to remember, at least once, one of the three lakh farmers who died in the field as he failed to sustain his crop or sell his produce for an appropriate price and hence, could not pay of the debt before defying the transparency law and directions, and discontinue the non-disclosure policy which will seriously harm the economy of the nation.

The Central Information Commission (CIC) has issued a show-cause notice to RBI Governor Urjit Patel for "dishonouring" a Supreme Court judgment on disclosure of the wilful defaulters' list.

The Central Information Commission (CIC) has issued a show-cause notice to RBI Governor Urjit Patel for "dishonouring" a Supreme Court judgment on disclosure of the wilful defaulters' list. The CIC has also asked the Prime Minister's Office, the Finance Ministry and the Reserve Bank of India (RBI) to make public the letter of former RBI governor Raghuram Rajan on bad loans. Irked over the denial of information on disclosure of names of wilful defaulters who have taken bank loans of Rs 50 crore and above by the RBI in spite of a Supreme Court order, the CIC has asked Patel to explain why a maximum penalty should not be imposed on him for "dishonouring" the court verdict, which had upheld a decision taken by then information commissioner Shailesh Gandhi, calling for disclosure of names of wilful defaulters. Patel, speaking at the Central Vigilance Commission (CVC) on September 20, had said the guidelines on vigilance, issued by the CVC, were aimed at achieving greater transparency, promoting a culture of honesty and probity in public life and improving the overall vigilance administration in the organisations within its purview, the CIC pointed out. "The commission feels that there is no match between what RBI governor and deputy governor say and their website regarding their RTI policy, and a great secrecy of vigilance reports and inspection reports is being maintained with impunity, in spite of the Supreme Court confirming the orders of the CIC in the Jayantilal case," Information Commissioner Sridhar Acharyulu said. He concluded that it would not serve any purpose to punish the CPIO for this defiance, because he acted under the instructions of the top authorities. "The commission considers the governor as the deemed PIO responsible for non-disclosure and defiance of Supreme Court orders and CIC orders and directs him to show cause why a maximum penalty should not be imposed on him for these reasons, before November 16," Acharyulu said. He rejected the arguments of Santosh Kumar Panigrahy of the RBI that section 22 of the Right to Information (RTI) Act would not override various laws he quoted, prohibiting disclosure of names and details of wilful defaulters and hence, the RBI should be discharged from the obligations of disclosure. "His contention that unless the above-referred enactments are repealed, the RBI cannot disclose the details of defaulters is also absurd," Acharyulu said. He added that another contention of Panigrahy that the pendency of a PIL before the Supreme Court on the issue would prevent him from disclosure was also baseless as he did not present any interim order passed by the Supreme Court preventing the disclosure of names of wilful defaulters or against the proceedings before the CIC. "These submissions of the RBI show that its legal wing did not bring to the notice of the CPIO that in the RBI vs Jayantilal N Mistry case, a Supreme Court bench consisting of M Y Eqbat and C Nagappan JJ, on December 16, 2015 [Transferred Cases (Civil) Nos. 91 to 101 of 2015], gave a landmark decision, upholding the direction of the CIC to disclose the inspection reports of the RBI and the names of wilful defaulters in many cases, rejecting all the above-referred contentions of the RBI," Acharyulu said. The information commissioner said in that case, the counsel for the RBI had raised the same contentions, referring to the same cases referred by Panigrahy, and those were straightaway rejected by the Supreme Court. "The commission finds no merit in hiding the names of, details and action against wilful defaulters of big bad loans worth hundreds of crores of rupees. "The RBI shall disclose the bad debt details of defaulters worth more than Rs 1,000 crore at the beginning, of Rs 500 crore or less at a later stage within five days and collect such information from the banks in due course to update their voluntary disclosures from time to time as a practice under section 4(1)(b) of the RTI Act," he said. Acharyulu asked the RBI governor to remember, at least once, one of the three lakh farmers who died in the field as he failed to sustain his crop or sell his produce for an appropriate price and hence, could not pay of the debt before defying the transparency law and directions, and discontinue the non-disclosure policy which will seriously harm the economy of the nation.

RBI chief gets show-cause notice for 'dishonouring' SC judgment

A speech by a top Reserve Bank of India (RBI) official last Friday blew the lid off an increasingly toxic dispute between the central bank and the government of Prime Minister Narendra Modi over monetary policy and who controls the institution's reserves.

While historically there have been differences between the <a href="http://www.wionews.com/india-news/government-very-upset-with-rbi-for-making-rift-public-sources-174359">RBI and the nation's governments</a>, the extent of the rift and its public nature are unprecedented.

By Wednesday morning, there were Indian media reports saying that RBI Governor Urjit Patel was about to resign. The RBI declined comment.

This followed three letters to the RBI from the finance ministry <a href="http://www.wionews.com/india-news/government-invokes-never-used-before-powers-to-issue-directions-to-rbi-report-174517">threatening to invoke Section 7</a> of the RBI Act that would allow the government to dictate policy to the central bank, according to a senior source with direct knowledge of developments.

But faced with declines in the rupee and government bond prices as investors got unnerved, the government issued a statement supporting the RBI's autonomy while indicating it would still be pressing very hard to have its own way.

In his speech, <a href="http://www.wionews.com/india-news/a-govt-that-does-not-respect-rbis-independence-will-incur-wrath-of-markets-rbi-deputy-governor-173752">RBI Deputy Governor Viral Acharya</a> said that undermining central bank independence could be "potentially catastrophic", and he even cited meddling by the Argentine government in the affairs of its central bank in 2010 - prompting big drops in that nation's financial markets - as a sign of how bad things can get.

The remarks were widely seen as a sign that the&nbsp; RBI was pushing back hard against government pressure to relax its policies and reduce its powers ahead of a general election due by May.

Finance ministry and RBI spokespersons declined comment.

The RBI is not statutorily independent, as the governor is appointed by the government, but it has enjoyed broad autonomy in regulating the banking sector. It is mandated to control inflation within a 2 to 6 percent range while keeping in mind India's economic growth objective.

HERE ARE SIX CRITICAL AREAS OF CONFLICT:

CASH GRAB

The government has made repeated calls for the RBI to hand over more money from the RBI's reserves to help fund its fiscal deficit. The RBI currently hands over its profits earned from various activities in the form of a dividend. But the government also wants to tap a share of the RBI's 3.6 trillion rupees ($48.73 billion) of capital reserves. The RBI has consistently pushed back against the demand.

OUT OF THE SHADOWS

The government wants the RBI to provide more liquidity to the shadow banking sector, which has been hurt by the defaults of major financing company, Infrastructure Leasing &amp; Financial Services (IL&amp;FS). Those defaults triggered sell-off in bonds and stocks of non-banking financial companies. The government has been asking the RBI for a dedicated liquidity window for these lenders similar to one allowed during the 2008-2009 global financial crisis.

JUST RELAX

The government has also been urging the RBI to relax its lending restrictions on 11 state-run banks. The curbs were imposed because the banks had a low capital base and major bad debt problems. The 11 are barred from lending unless they reduce their bad debt levels, improve their capital ratios and become profitable. The government says the restrictions have gone too far and have reduced the availability of loans for small- and medium sized businesses.

ENCROACHING

The RBI is also irked by the government's efforts to trim the central bank's regulatory powers by proposing to set up an independent payments regulator. Currently the RBI regulates all payments and settlements in the economy. The government says it wants a separate payment regulator which will be able to adapt to rapid changes in technology.

BOARD INFLUENCE

The government appointed S Gurumurthy, a prominent BJP supporter and an affiliate of the Hindu nationalist Rashtriya Swayamsevak Sangh (RSS), to the RBI board earlier this year along with Satish Marathe, a former banker with ties to the RSS. Such political appointments have been unusual in the past as the RBI board's external members have mostly been economists and industrialists. Traditionally, the RBI's board has approved decisions related to internal functions of the central bank and it has not interfered in its supervisory and monetary policy functions.

KEEPING MUM

Senior government officials, as well as BJP and RSS officials, are angry that the RBI decided to go public over the quarrels. Acharya made it clear he had been asked to address the independence question by Patel and in a show of unity the three other deputy governors attended his speech. In its statement concerning autonomy on Wednesday, the government stressed that it will keep discussions confidential.

WHY IT MATTERS

FOR GOVERNMENT

The central government has been under pressure ahead of regional polls due at the end of 2018 because of weak farm prices and surging fuel costs, which have been hurting rural incomes. The government recently cut excise duty on gasoline and diesel, adding to pressure on its deficit.

The Budget is also being undermined by muted revenue collection from recently introduced Goods and Service Tax (GST).

Added to this, the IL&amp;FS woes have led to a liquidity crunch across much of the shadow banking sector and throttled off some lending.

All of this could slow a $2.6 trillion economy, the world's sixth largest, only months before the general election. To prevent that from happening, Prime Minister Narendra Modi is expected to spend more on populist programmes, including boosts to rural wages, fuel subsidies and buying crops at a guaranteed minimum price.

FOR INVESTORS

The rift has created political and economic uncertainty. Investors want policy continuity from both the RBI and the government to ensure inflation is kept in check and economic stability is maintained.

A persistent fall in the inflation rate since 2014 in a country that was used to volatile price pressures instilled confidence in the central bank and attracted investors. However, investors fear such hard-earned economic gains could be at risk if the government can pull the RBI’s strings.

A speech by a top Reserve Bank of India (RBI) official last Friday blew the lid off an increasingly toxic dispute between the central bank and the government of Prime Minister Narendra Modi over monetary policy and who controls the institution's reserves.

A speech by a top Reserve Bank of India (RBI) official last Friday blew the lid off an increasingly toxic dispute between the central bank and the government of Prime Minister Narendra Modi over monetary policy and who controls the institution's reserves. While historically there have been differences between the RBI and the nation's governments, the extent of the rift and its public nature are unprecedented. By Wednesday morning, there were Indian media reports saying that RBI Governor Urjit Patel was about to resign. The RBI declined comment. This followed three letters to the RBI from the finance ministry threatening to invoke Section 7 of the RBI Act that would allow the government to dictate policy to the central bank, according to a senior source with direct knowledge of developments. But faced with declines in the rupee and government bond prices as investors got unnerved, the government issued a statement supporting the RBI's autonomy while indicating it would still be pressing very hard to have its own way. In his speech, RBI Deputy Governor Viral Acharya said that undermining central bank independence could be "potentially catastrophic", and he even cited meddling by the Argentine government in the affairs of its central bank in 2010 - prompting big drops in that nation's financial markets - as a sign of how bad things can get. The remarks were widely seen as a sign that the RBI was pushing back hard against government pressure to relax its policies and reduce its powers ahead of a general election due by May. Finance ministry and RBI spokespersons declined comment. The RBI is not statutorily independent, as the governor is appointed by the government, but it has enjoyed broad autonomy in regulating the banking sector. It is mandated to control inflation within a 2 to 6 percent range while keeping in mind India's economic growth objective. HERE ARE SIX CRITICAL AREAS OF CONFLICT: CASH GRAB The government has made repeated calls for the RBI to hand over more money from the RBI's reserves to help fund its fiscal deficit. The RBI currently hands over its profits earned from various activities in the form of a dividend. But the government also wants to tap a share of the RBI's 3.6 trillion rupees ($48.73 billion) of capital reserves. The RBI has consistently pushed back against the demand. OUT OF THE SHADOWS The government wants the RBI to provide more liquidity to the shadow banking sector, which has been hurt by the defaults of major financing company, Infrastructure Leasing & Financial Services (IL&FS). Those defaults triggered sell-off in bonds and stocks of non-banking financial companies. The government has been asking the RBI for a dedicated liquidity window for these lenders similar to one allowed during the 2008-2009 global financial crisis. JUST RELAX The government has also been urging the RBI to relax its lending restrictions on 11 state-run banks. The curbs were imposed because the banks had a low capital base and major bad debt problems. The 11 are barred from lending unless they reduce their bad debt levels, improve their capital ratios and become profitable. The government says the restrictions have gone too far and have reduced the availability of loans for small- and medium sized businesses. ENCROACHING The RBI is also irked by the government's efforts to trim the central bank's regulatory powers by proposing to set up an independent payments regulator. Currently the RBI regulates all payments and settlements in the economy. The government says it wants a separate payment regulator which will be able to adapt to rapid changes in technology. BOARD INFLUENCE The government appointed S Gurumurthy, a prominent BJP supporter and an affiliate of the Hindu nationalist Rashtriya Swayamsevak Sangh (RSS), to the RBI board earlier this year along with Satish Marathe, a former banker with ties to the RSS. Such political appointments have been unusual in the past as the RBI board's external members have mostly been economists and industrialists. Traditionally, the RBI's board has approved decisions related to internal functions of the central bank and it has not interfered in its supervisory and monetary policy functions. KEEPING MUM Senior government officials, as well as BJP and RSS officials, are angry that the RBI decided to go public over the quarrels. Acharya made it clear he had been asked to address the independence question by Patel and in a show of unity the three other deputy governors attended his speech. In its statement concerning autonomy on Wednesday, the government stressed that it will keep discussions confidential. WHY IT MATTERS FOR GOVERNMENT The central government has been under pressure ahead of regional polls due at the end of 2018 because of weak farm prices and surging fuel costs, which have been hurting rural incomes. The government recently cut excise duty on gasoline and diesel, adding to pressure on its deficit. The Budget is also being undermined by muted revenue collection from recently introduced Goods and Service Tax (GST). Added to this, the IL&FS woes have led to a liquidity crunch across much of the shadow banking sector and throttled off some lending. All of this could slow a $2.6 trillion economy, the world's sixth largest, only months before the general election. To prevent that from happening, Prime Minister Narendra Modi is expected to spend more on populist programmes, including boosts to rural wages, fuel subsidies and buying crops at a guaranteed minimum price. FOR INVESTORS The rift has created political and economic uncertainty. Investors want policy continuity from both the RBI and the government to ensure inflation is kept in check and economic stability is maintained. A persistent fall in the inflation rate since 2014 in a country that was used to volatile price pressures instilled confidence in the central bank and attracted investors. However, investors fear such hard-earned economic gains could be at risk if the government can pull the RBI’s strings.

Why Modi government wants to increase control over the RBI

The International Monetary Fund has said it was monitoring the development in India with regard to the reported rift between the Reserve Bank of India and the Centre.

It expressed its opposition to any move that compromises with the independence of central banks anywhere in the world.

"We're monitoring the development on that issue and will continue to do so," IMF Director of Communications Gerry Rice told reporters on Thursday when asked about the row.

"Just stepping back, as a general principle, and we've said this before. I've said this before standing here that we support clear lines of responsibility and accountability... And, international best practice is that there should be no government or industry interference that compromises the independence of the central bank and financial supervisor," Rice said.

This is true across the range of countries that the independence of the central bank and the financial supervisor is of utmost importance, he asserted.

"We regard it as such and we have to make that statement in the context of a number of countries. So, I think that's probably the best response I can give you," Rice said, responding to a question on the increasing efforts globally to criticise central banks, including the one by the US President Donald Trump in recent weeks.

The row was sparked off last Friday when RBI Deputy Governor Viral Acharya in a hard-hitting speech warned that undermining central bank's independence could be "potentially catastrophic", possible indication of the RBI being pushed to relax its policies ahead of general elections next year.

Sources privy to the development said the government had sent at least three letters on different issues under Section 7 of the RBI Act that gives it powers to issue any direction to the central bank governor on matters of public interest.

The standoff was in relation to RBI's handling of weak public sector banks, tight liquidity in the market and ways of resolving bad loans in the power sector. Unconfirmed reports claimed Governor Urjit Patel was considering stepping down if the government were to issue an unprecedented direction.

Without acknowledging that the notices have been sent to the RBI, the Finance Ministry in a statement said that the "autonomy for the central bank, within the framework of the RBI Act, is an essential and accepted governance requirement. Governments in India have nurtured and respected this".

The International Monetary Fund has said it was monitoring the development in India with regard to the reported rift between the Reserve Bank of India and the Centre.

The International Monetary Fund has said it was monitoring the development in India with regard to the reported rift between the Reserve Bank of India and the Centre. It expressed its opposition to any move that compromises with the independence of central banks anywhere in the world. "We're monitoring the development on that issue and will continue to do so," IMF Director of Communications Gerry Rice told reporters on Thursday when asked about the row. "Just stepping back, as a general principle, and we've said this before. I've said this before standing here that we support clear lines of responsibility and accountability... And, international best practice is that there should be no government or industry interference that compromises the independence of the central bank and financial supervisor," Rice said. This is true across the range of countries that the independence of the central bank and the financial supervisor is of utmost importance, he asserted. "We regard it as such and we have to make that statement in the context of a number of countries. So, I think that's probably the best response I can give you," Rice said, responding to a question on the increasing efforts globally to criticise central banks, including the one by the US President Donald Trump in recent weeks. The row was sparked off last Friday when RBI Deputy Governor Viral Acharya in a hard-hitting speech warned that undermining central bank's independence could be "potentially catastrophic", possible indication of the RBI being pushed to relax its policies ahead of general elections next year. Sources privy to the development said the government had sent at least three letters on different issues under Section 7 of the RBI Act that gives it powers to issue any direction to the central bank governor on matters of public interest. The standoff was in relation to RBI's handling of weak public sector banks, tight liquidity in the market and ways of resolving bad loans in the power sector. Unconfirmed reports claimed Governor Urjit Patel was considering stepping down if the government were to issue an unprecedented direction. Without acknowledging that the notices have been sent to the RBI, the Finance Ministry in a statement said that the "autonomy for the central bank, within the framework of the RBI Act, is an essential and accepted governance requirement. Governments in India have nurtured and respected this".

RBI row: IMF against govt interference that compromises central bank's independence

The Reserve Bank of India governor should work in sync with the nation's government to support economic growth or he <a href="http://www.wionews.com/india-news/rbi-governor-urjit-patel-may-consider-resigning-after-rift-with-government-report-174513">should resign</a>, said the head of the economic wing of Rashtriya Swayamsevak Sangh.

<a href="http://www.wionews.com/india-news/a-govt-that-does-not-respect-rbis-independence-will-incur-wrath-of-markets-rbi-deputy-governor-173752">RBI Governor</a> Urjit Patel should also "restrain his officials from making differences public," said the RSS official, Ashwani Mahajan, in an interview on Wednesday. "If he doesn't follow discipline it would be better for him to resign," he added.

Mahajan is chief of the RSS's Swadeshi Jagran Manch (SJM) economic group.

Earlier in the day, some local TV channels reported that Patel could consider resigning from his post given a breakdown in relations with the government, sparking a sell-off in the rupee and bonds.

Tensions between the RBI and the government have become increasingly public after the bank's Deputy Governor Viral Acharya said last Friday night that undermining central bank independence could be "potentially catastrophic".

His comments indicated that the RBI was pushing back against government pressure to relax its policies and reduce its powers ahead of a general election due by May.

In a statement, the government said on Wednesday the RBI's independence was "an essential and accepted governance requirement" but it added that it would continue to extensively consult with the central bank to give its assessments on issues and suggest possible solutions.

Government officials on Wednesday declined to say whether it had for the first time ever used, or threatened to use, powers under the RBI Act that allow it to give the bank instructions. The Economic Times newspaper reported the government had sent letters to Patel in recent weeks exercising those powers.

Mahajan said that the government had every right to use the powers of the RBI act.

The Reserve Bank of India governor should work in sync with the nation's government to support economic growth or he should resign, said the head of the economic wing of Rashtriya Swayamsevak Sangh.

The Reserve Bank of India governor should work in sync with the nation's government to support economic growth or he should resign, said the head of the economic wing of Rashtriya Swayamsevak Sangh. RBI Governor Urjit Patel should also "restrain his officials from making differences public," said the RSS official, Ashwani Mahajan, in an interview on Wednesday. "If he doesn't follow discipline it would be better for him to resign," he added. Mahajan is chief of the RSS's Swadeshi Jagran Manch (SJM) economic group. Earlier in the day, some local TV channels reported that Patel could consider resigning from his post given a breakdown in relations with the government, sparking a sell-off in the rupee and bonds. Tensions between the RBI and the government have become increasingly public after the bank's Deputy Governor Viral Acharya said last Friday night that undermining central bank independence could be "potentially catastrophic". His comments indicated that the RBI was pushing back against government pressure to relax its policies and reduce its powers ahead of a general election due by May. In a statement, the government said on Wednesday the RBI's independence was "an essential and accepted governance requirement" but it added that it would continue to extensively consult with the central bank to give its assessments on issues and suggest possible solutions. Government officials on Wednesday declined to say whether it had for the first time ever used, or threatened to use, powers under the RBI Act that allow it to give the bank instructions. The Economic Times newspaper reported the government had sent letters to Patel in recent weeks exercising those powers. Mahajan said that the government had every right to use the powers of the RBI act.

RBI head should work with government or quit, says RSS official 

What the government giveth, the government taketh. Beginning 1934, the Reserve Bank of India has enjoyed uninterrupted and unquestionable primacy in all things monetary in India.&nbsp;

The sudden volte-face by the government, has therefore shaken the RBI to its very foundations. When the inter-ministerial committee (IC) was constituted in October 2017, little did the RBI realise that it would result in ending its long era of dominance over regulating payment systems in India.

A quick flashback takes us to the RBI Act of 1934, which vested all matters monetary and regulatory with the central bank. This was consolidated with the Payment and Settlement Systems Act, 2007 (PSS Act) designating RBI, the banking regulator, as the over seer for all forms of payment systems.

The IC Report with its recommendation for a Payment Regulatory Board (PRB) with RBI being a minority stakeholder, has truly shaken and stirred the regulator, who till date exercised a monopoly over proceedings.&nbsp;

Even under the PSS Act of 2007, there was a central board comprised only of RBI representatives with its governor in the chair. The PRB, first mooted under the Finance Act 2017, paved the first step towards the dilution of RBI’s monopoly with its inclusion of equal representation of three central government representatives along with three RBI officials. The Finance Act, however, still vested the RBI governor with the position of ex-officio chairperson.

Then came the blow through the IC Report, which proposes for any “Person appointed by the government in consultation with the RBI”, to be appointed as the ex-officio chairperson.&nbsp;

Further, with the increase in the composition of the PRB to seven members with four (including the chairperson) being central government representatives, RBI clearly becomes a minority presence.

The central bank has not questioned government representation on the proposed PRB, but has voiced strong dissent against the dilution of its powers – especially of the chairperson no longer being only the RBI governor.&nbsp;

It has therefore insisted on this as also for veto powers to the chairperson, to ensure its majority. Its claim is based inter alia on its role as the banking regulator and hence the need for harmonious regulations.

The IC’s concessions to RBI’s dissent is to include the need for the chairperson to have “experience in the central banking function” and for RBI to have the power to “make a reference” to the PRB for consideration of issues pertaining to monetary policies. Neither of these meets the RBI’s pitch for retaining its power over regulating payment systems.

RBI faces a strong threat to unfettered primacy over regulating payment systems and its fear that this is only the beginning, may also not be misconceived. After all, RBI is no stranger to trespassing on alternate turfs, as was evident from its April 6, 2018, circular on financial data localisation by all payment systems, upstaging the then awaited government committee report.

The possibilities facing RBI now are (a) divestment of powers over payment systems, (b) dilution of its monopoly over regulating payment systems to merely a recommendatory role and (c) being reduced from a monopolistic regulatory position to that of an advisory one.&nbsp;

The implications for the nation are larger with the central government taking back the power to regulate payment systems instead of the settled construct of a unitary regulatory body exercising powers over all things monetary.&nbsp;

On one hand, this may reduce the now palpable friction between government policies or intent and regulatory execution (through RBI) and ensure harmony. On the other, monetary policies will seesaw with every change in the government. &nbsp;

Such state of flux may not augur well for certainty or stability in monetary policies. Internal turf wars then become a definitive possibility.

Legally speaking, RBI would be hard pressed to prove its claim to retain its monopolistic regulatory right. The sovereign right over deciding India’s monetary policy vests with the central government.

RBI’s right to regulate payment systems is through statutory authority vested under the PSS Act of 2007. This, of course, can or may be modified through parliamentary process, which is what the proposed amendments to the PSS Act envisages.&nbsp;

Prolonged vesting of authority in RBI by itself is therefore not going to be sufficient for the central bank to sustain its claim. The separation of powers argued by the RBI in its dissent note is one of vested authority and not a constitutional one.&nbsp;

The RBI dissent is that of a singular minority in the report of the IC and the majority view may therefore prevail. In any event, the report itself is merely a recommendation. It is for the houses of Parliament (or the Finance Act route) to decide the future of regulation of payment systems.&nbsp;

Payment systems now permeate chat apps and online games. In just a decade, private, especially international players, have slowly become the primary or preferred payment mechanisms, as opposed to banks. Despite tightening of regulation, private players have consistently found loopholes.

The recent thrust has been towards digital payment alternatives, especially after demonetisation.&nbsp;

In a world ill-equipped to deal with evolving technologies – abject digital illiteracy, poor enforcement mechanisms against evolving cyber-crimes, financial frauds, Ponzi schemes and technology-enabled crimes, the urgent need is for a strong regulator with sufficient powers to not only prevent, but to also protect and punish.&nbsp;

 
(This article was originally published on DNA. Read the <a href="https://www.dnaindia.com/analysis/column-rocking-the-central-bank-2680325">original article</a>)

(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)

&nbsp;

What the government giveth, the government taketh. Beginning 1934, the Reserve Bank of India has enjoyed uninterrupted and unquestionable primacy in all things monetary in India.

What the government giveth, the government taketh. Beginning 1934, the Reserve Bank of India has enjoyed uninterrupted and unquestionable primacy in all things monetary in India. The sudden volte-face by the government, has therefore shaken the RBI to its very foundations. When the inter-ministerial committee (IC) was constituted in October 2017, little did the RBI realise that it would result in ending its long era of dominance over regulating payment systems in India. A quick flashback takes us to the RBI Act of 1934, which vested all matters monetary and regulatory with the central bank. This was consolidated with the Payment and Settlement Systems Act, 2007 (PSS Act) designating RBI, the banking regulator, as the over seer for all forms of payment systems. The IC Report with its recommendation for a Payment Regulatory Board (PRB) with RBI being a minority stakeholder, has truly shaken and stirred the regulator, who till date exercised a monopoly over proceedings. Even under the PSS Act of 2007, there was a central board comprised only of RBI representatives with its governor in the chair. The PRB, first mooted under the Finance Act 2017, paved the first step towards the dilution of RBI’s monopoly with its inclusion of equal representation of three central government representatives along with three RBI officials. The Finance Act, however, still vested the RBI governor with the position of ex-officio chairperson. Then came the blow through the IC Report, which proposes for any “Person appointed by the government in consultation with the RBI”, to be appointed as the ex-officio chairperson. Further, with the increase in the composition of the PRB to seven members with four (including the chairperson) being central government representatives, RBI clearly becomes a minority presence. The central bank has not questioned government representation on the proposed PRB, but has voiced strong dissent against the dilution of its powers – especially of the chairperson no longer being only the RBI governor. It has therefore insisted on this as also for veto powers to the chairperson, to ensure its majority. Its claim is based inter alia on its role as the banking regulator and hence the need for harmonious regulations. The IC’s concessions to RBI’s dissent is to include the need for the chairperson to have “experience in the central banking function” and for RBI to have the power to “make a reference” to the PRB for consideration of issues pertaining to monetary policies. Neither of these meets the RBI’s pitch for retaining its power over regulating payment systems. RBI faces a strong threat to unfettered primacy over regulating payment systems and its fear that this is only the beginning, may also not be misconceived. After all, RBI is no stranger to trespassing on alternate turfs, as was evident from its April 6, 2018, circular on financial data localisation by all payment systems, upstaging the then awaited government committee report. The possibilities facing RBI now are (a) divestment of powers over payment systems, (b) dilution of its monopoly over regulating payment systems to merely a recommendatory role and (c) being reduced from a monopolistic regulatory position to that of an advisory one. The implications for the nation are larger with the central government taking back the power to regulate payment systems instead of the settled construct of a unitary regulatory body exercising powers over all things monetary. On one hand, this may reduce the now palpable friction between government policies or intent and regulatory execution (through RBI) and ensure harmony. On the other, monetary policies will seesaw with every change in the government. Such state of flux may not augur well for certainty or stability in monetary policies. Internal turf wars then become a definitive possibility. Legally speaking, RBI would be hard pressed to prove its claim to retain its monopolistic regulatory right. The sovereign right over deciding India’s monetary policy vests with the central government. RBI’s right to regulate payment systems is through statutory authority vested under the PSS Act of 2007. This, of course, can or may be modified through parliamentary process, which is what the proposed amendments to the PSS Act envisages. Prolonged vesting of authority in RBI by itself is therefore not going to be sufficient for the central bank to sustain its claim. The separation of powers argued by the RBI in its dissent note is one of vested authority and not a constitutional one. The RBI dissent is that of a singular minority in the report of the IC and the majority view may therefore prevail. In any event, the report itself is merely a recommendation. It is for the houses of Parliament (or the Finance Act route) to decide the future of regulation of payment systems. Payment systems now permeate chat apps and online games. In just a decade, private, especially international players, have slowly become the primary or preferred payment mechanisms, as opposed to banks. Despite tightening of regulation, private players have consistently found loopholes. The recent thrust has been towards digital payment alternatives, especially after demonetisation. In a world ill-equipped to deal with evolving technologies – abject digital illiteracy, poor enforcement mechanisms against evolving cyber-crimes, financial frauds, Ponzi schemes and technology-enabled crimes, the urgent need is for a strong regulator with sufficient powers to not only prevent, but to also protect and punish. (This article was originally published on DNA. Read the original article) (Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)

Rocking the central bank

The Reserve Bank of India on Friday eased lending norms related to certain non-banking finance companies (NBFCs) as liquidity concerns in the sector persist and markets continue to question the viability of some of the firms following the IL&amp;FS debacle.

The central bank on Friday said it would allow banks to allocate up to 15 percent of their lending to NBFCs that do not finance infrastructure projects, up from an earlier limit of 10 percent. The move is effective up to Dec. 31, the Reserve Bank of India said in a statement.&nbsp;

The relaxation in lending norms by RBI follows worries over tightening credit lines to NBFCs after a series of defaults at India`s Infrastructure Leasing &amp; Financial Services Ltd (IL&amp;FS), spooked markets and led to a major sell-off in the stocks of many NBFCs.

Earlier this month, the Indian government stepped in to take control of IL&amp;FS saying it feared its collapse would cause "catastrophic" damage to the financial markets and the economy.

This week a loan default by real-estate developer Supertech, based in New Delhi, has further panicked investors, leading to further sell-offs in NBFCs with any potential exposure to real estate.

Shares in Dewan Housing Finance Corp Ltd closed down 10.75 per cent on Friday, while shares in Indiabulls Housing Finance and Edelweiss Financial Services Ltd fell 17.1 per cent and 8.7 per cent respectively.

Indian markets were shut on Thursday, but Friday`s sell-off came on top of prior declines in the stocks on Wednesday.&nbsp;

Supertech`s chairman told a local newspaper on Wednesday that Supertech had overshot its loan service deadline by 15 days to two state-run banks, but he said the firm was still servicing its debt from NBFCs regularly.

This followed an October 10 downgrade of its loan facilities by ratings agency Brickwork Ratings which slashed its 18.66 billion rupees ($253.91 million) of bank loans to junk, citing cashflow mismatches on account of a slowdown in the real estate sector.

"There is lot of fear and uncertainty among investors and any such default news which could lead to a credit loss is creating more uncertainty," said Ajay Manglunia, head of fixed income advisory at Edelweiss Financial Services.&nbsp;

"Clearly this shows that investors don`t have any more appetite for credit losses in the non-bank finance space."

The Reserve Bank of India on Friday eased lending norms related to certain non-banking finance companies (NBFCs) as liquidity concerns in the sector persist and markets continue to question the viability of some of the firms following the IL&FS debacle.

The Reserve Bank of India on Friday eased lending norms related to certain non-banking finance companies (NBFCs) as liquidity concerns in the sector persist and markets continue to question the viability of some of the firms following the IL&FS debacle. The central bank on Friday said it would allow banks to allocate up to 15 percent of their lending to NBFCs that do not finance infrastructure projects, up from an earlier limit of 10 percent. The move is effective up to Dec. 31, the Reserve Bank of India said in a statement. The relaxation in lending norms by RBI follows worries over tightening credit lines to NBFCs after a series of defaults at India`s Infrastructure Leasing & Financial Services Ltd (IL&FS), spooked markets and led to a major sell-off in the stocks of many NBFCs. Earlier this month, the Indian government stepped in to take control of IL&FS saying it feared its collapse would cause "catastrophic" damage to the financial markets and the economy. This week a loan default by real-estate developer Supertech, based in New Delhi, has further panicked investors, leading to further sell-offs in NBFCs with any potential exposure to real estate. Shares in Dewan Housing Finance Corp Ltd closed down 10.75 per cent on Friday, while shares in Indiabulls Housing Finance and Edelweiss Financial Services Ltd fell 17.1 per cent and 8.7 per cent respectively. Indian markets were shut on Thursday, but Friday`s sell-off came on top of prior declines in the stocks on Wednesday. Supertech`s chairman told a local newspaper on Wednesday that Supertech had overshot its loan service deadline by 15 days to two state-run banks, but he said the firm was still servicing its debt from NBFCs regularly. This followed an October 10 downgrade of its loan facilities by ratings agency Brickwork Ratings which slashed its 18.66 billion rupees ($253.91 million) of bank loans to junk, citing cashflow mismatches on account of a slowdown in the real estate sector. "There is lot of fear and uncertainty among investors and any such default news which could lead to a credit loss is creating more uncertainty," said Ajay Manglunia, head of fixed income advisory at Edelweiss Financial Services. "Clearly this shows that investors don`t have any more appetite for credit losses in the non-bank finance space."

RBI eases bank lending limits to some non-banking finance

With the RBI data localisation mandate becoming effective as of October 15, the debate on its legality and viability is revived. Reports indicate that whilst most entities subject to regulation by RBI have complied, the larger multinationals, who probably account for the larger quantum of transactions, are still resisting compliance.

RBI’s circular of April 2018 pertains only to banks and payment systems that it regulates. Its mandate for data localisation also was restricted to all aspects of payments data. The multitude of commercial establishments, which have and utilise financial data, will be covered only under the provisions of the proposed Personal Data Protection (PDP) Bill, 2018. The deadline for public comments is now closed and the presentation of the final draft Bill is expected soon.

Presently, the draft PDP Bill also clearly provides for localisation of critical personal (CP) data but leaves definition thereof to the Central government. Global trends that are elicited and the recommendations accompanying the draft PDP Bill clearly indicate that a wide spectrum of CP, including data of critical infrastructure, finance and health would probably form part of CP.

RBI may have jumped the gun with its circular pre-dating the draft PDP Bill and Report, but it is not off the mark in its call for localisation. Many of us were sceptical about the call for localisation keeping in mind business needs and practicalities, but there cannot be any quandary about protecting critical data from rampant dissemination.

The objections to data localisation range from economic to absurd – additional costs and teething problems that any change in processes entail, do not appear to be the real reasons for the objections though they are projected, as such. The other objections touted at most discussions across India are (a) possibility of surveillance by Indian law enforcement agencies, (b) breaches and vulnerabilities of systems and (c) purported availability of better infrastructure outside India. The other and more recent objections including from USA is for “free flow of data” to enable businesses and to “benefit users”.

Each of the above objections to data-sharing appears specious. Surveillance was and continues to be a matter of grave concern, but to claim that it is a malaise restricted to India is untenable. Indians would, in fact, benefit from localisation to the extent that there would be immediate access to remedies against violation of due process. This would not be the case if their rights are violated outside India.

System vulnerability too is not confined to India. As with the vulnerability of systems in USA or Europe, so would it be in India. Similarly, the need to create local infrastructure and systems only spells business opportunities for India. The cost is an on-time investment and the returns and benefits are likely to be sustained over long periods of time.

Finally, free flow of data is and continues to be the bedrock of the Internet, but the very jurisdiction seeking this is the one which moved away from a Net Neutrality regime. That does not justify India opting for protectionist or exclusionary processes. Again, this would be so only if the data localization sought is intended or will result in the same.

Data localisation mandated under the RBI circular and that which is envisaged under the draft PDP Bill are not completely protectionist. It is limited to financial data under the RBI circular and CP under the draft PDP Bill.

Scratch the surface and the real reason for opposition comes to the fore. The need for one of the largest caches of data, as India is, stems not just from commercial interests or profits, but from the larger issue of “Control”. USA’s attempt to flex its muscles to coerce RBI to reverse its position or to extend an extremely elongated compliance window indicates its intent.

Data sharing and control over data has become the new battleground for control. Many an instance of not just data collation or analysis, but of manipulation using data analytics demonstrates the power of data. USA’s ‘‘Clarifying Lawful Overseas Use of Data Act’’ or the ‘‘CLOUD Act’’ and its overreaching provisions for interception and procuring of data of any online user is another illustration of the vulnerabilities that Indians’ data may be subjected to with unfettered data transfers.

The Justice Srikrishna Committee Report indicates that the decision to allow free flow of data and to limit restrictions only to CP indicates a well thought out process.

Apart from the loss of control, the next large concern appears to be jurisdiction. There has been consistent resistance from multinationals to subject themselves to India’s jurisdiction. Instances abound of government authorities’ orders and in many instances, even court orders not being complied with on grounds of jurisdiction. Localization would necessarily ensure not just ease of obtaining data for investigative, tax and other government purposes, but also for victims and litigants to enforce their rights more expeditiously.

The final fear-factor appears to be the nemesis of “taxation”. The Income Tax Act, 1961 already defines the principal place of business-wide enough to encompass the place where a business, profession or vocation is situated. Localization by itself would mean implementation of local infrastructure, which may give the taxman his much-needed jurisdiction.

Data localisation is here to stay. RBI’s circular and its implementation by a substantial number of entities governed by it has already proven feasibility. National interests, the exercise of sovereignty, need for easy access to data and possibly preventing foreign surveillance and dissemination are all bound to prevail over external pressure, for the Indian government to pass the provisions for data localisation. 
&nbsp;

(This article was originally published on DNA. Read the <a href="https://www.dnaindia.com/analysis/column-us-flexes-cyber-muscles-2676092">original article</a>)

(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)

&nbsp;

With the RBI data localisation mandate becoming effective as of October 15, the debate on its legality and viability is revived. Reports indicate that whilst most entities subject to regulation by RBI have complied, the larger multinationals, who probably account for the larger quantum of transactions, are still resisting compliance.

With the RBI data localisation mandate becoming effective as of October 15, the debate on its legality and viability is revived. Reports indicate that whilst most entities subject to regulation by RBI have complied, the larger multinationals, who probably account for the larger quantum of transactions, are still resisting compliance. RBI’s circular of April 2018 pertains only to banks and payment systems that it regulates. Its mandate for data localisation also was restricted to all aspects of payments data. The multitude of commercial establishments, which have and utilise financial data, will be covered only under the provisions of the proposed Personal Data Protection (PDP) Bill, 2018. The deadline for public comments is now closed and the presentation of the final draft Bill is expected soon. Presently, the draft PDP Bill also clearly provides for localisation of critical personal (CP) data but leaves definition thereof to the Central government. Global trends that are elicited and the recommendations accompanying the draft PDP Bill clearly indicate that a wide spectrum of CP, including data of critical infrastructure, finance and health would probably form part of CP. RBI may have jumped the gun with its circular pre-dating the draft PDP Bill and Report, but it is not off the mark in its call for localisation. Many of us were sceptical about the call for localisation keeping in mind business needs and practicalities, but there cannot be any quandary about protecting critical data from rampant dissemination. The objections to data localisation range from economic to absurd – additional costs and teething problems that any change in processes entail, do not appear to be the real reasons for the objections though they are projected, as such. The other objections touted at most discussions across India are (a) possibility of surveillance by Indian law enforcement agencies, (b) breaches and vulnerabilities of systems and (c) purported availability of better infrastructure outside India. The other and more recent objections including from USA is for “free flow of data” to enable businesses and to “benefit users”. Each of the above objections to data-sharing appears specious. Surveillance was and continues to be a matter of grave concern, but to claim that it is a malaise restricted to India is untenable. Indians would, in fact, benefit from localisation to the extent that there would be immediate access to remedies against violation of due process. This would not be the case if their rights are violated outside India. System vulnerability too is not confined to India. As with the vulnerability of systems in USA or Europe, so would it be in India. Similarly, the need to create local infrastructure and systems only spells business opportunities for India. The cost is an on-time investment and the returns and benefits are likely to be sustained over long periods of time. Finally, free flow of data is and continues to be the bedrock of the Internet, but the very jurisdiction seeking this is the one which moved away from a Net Neutrality regime. That does not justify India opting for protectionist or exclusionary processes. Again, this would be so only if the data localization sought is intended or will result in the same. Data localisation mandated under the RBI circular and that which is envisaged under the draft PDP Bill are not completely protectionist. It is limited to financial data under the RBI circular and CP under the draft PDP Bill. Scratch the surface and the real reason for opposition comes to the fore. The need for one of the largest caches of data, as India is, stems not just from commercial interests or profits, but from the larger issue of “Control”. USA’s attempt to flex its muscles to coerce RBI to reverse its position or to extend an extremely elongated compliance window indicates its intent. Data sharing and control over data has become the new battleground for control. Many an instance of not just data collation or analysis, but of manipulation using data analytics demonstrates the power of data. USA’s ‘‘Clarifying Lawful Overseas Use of Data Act’’ or the ‘‘CLOUD Act’’ and its overreaching provisions for interception and procuring of data of any online user is another illustration of the vulnerabilities that Indians’ data may be subjected to with unfettered data transfers. The Justice Srikrishna Committee Report indicates that the decision to allow free flow of data and to limit restrictions only to CP indicates a well thought out process. Apart from the loss of control, the next large concern appears to be jurisdiction. There has been consistent resistance from multinationals to subject themselves to India’s jurisdiction. Instances abound of government authorities’ orders and in many instances, even court orders not being complied with on grounds of jurisdiction. Localization would necessarily ensure not just ease of obtaining data for investigative, tax and other government purposes, but also for victims and litigants to enforce their rights more expeditiously. The final fear-factor appears to be the nemesis of “taxation”. The Income Tax Act, 1961 already defines the principal place of business-wide enough to encompass the place where a business, profession or vocation is situated. Localization by itself would mean implementation of local infrastructure, which may give the taxman his much-needed jurisdiction. Data localisation is here to stay. RBI’s circular and its implementation by a substantial number of entities governed by it has already proven feasibility. National interests, the exercise of sovereignty, need for easy access to data and possibly preventing foreign surveillance and dissemination are all bound to prevail over external pressure, for the Indian government to pass the provisions for data localisation. (This article was originally published on DNA. Read the original article) (Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)

RBI data localisation: US flexes cyber muscles

As many as 80 per cent players in the payment industry, including Amazon, Paytm and WhatsApp, have complied with the norms for <a href="http://www.wionews.com/india-news/us-senators-writes-to-modi-to-soften-data-localisation-stance-171380">local storage of data</a>, with RBI's deadline coming to close on Monday, sources said.

However, they said some debit/credit companies are yet to comply with data storage norms and have reportedly sought more time.

The Reserve Bank is not contemplating review of its notification on data localisation norms, the sources said.

In April, the central bank had given six months to global payment companies to store transaction data of Indian customers within India.

Although 80 per cent of the players operating in India have complied with the Reserve Bank directive, some global financial technology companies have reportedly sought an extension to the October 15 timeline.

"The RBI will look at things on a case-to-case basis from tomorrow while handling the subject," one of the sources said, without mentioning if the central bank would take action or impose penalties for non-compliance.

Digital payments platform PhonePe said it has informed the Reserve Bank of India of its full compliance with the data localisation mandate to ensure payments data of Indian users is stored within the country.

The central bank's data localisation policy had elicited mixed response from the payment services industry. While some of the prominent domestic payment companies like Paytm and PhonePe have been supportive of the dictum, global players like Google (that offers Google Pay) had argued for free movement of data.

Some international players have appealed for more time for compliance and also asked that they be allowed to mirror the data.

Paytm, which had vociferously supported data localisation, said critical data must not be allowed to go out of the country, not even for processing.

"We have complied to this mandate since day one and have welcomed this initiative right from the beginning. It is important that we do not become mere internet colonies for global companies, and make every organisation accountable towards the security and privacy of data of our fellow countrymen," a Paytm spokesperson said.

US-based messaging platform WhatsApp has already said it has developed a system to store payments-related data in India.

An Amazon spokesperson said "compliance with local laws and regulation is a top priority for us in all the countries we operate in. We continue to work closely with the regulators towards this".

Google is learnt to have agreed to follow the RBI's local data storage norm for payment services but has asked for time until December to ensure compliance, a government source had indicated recently.

Critics of <a href="http://www.wionews.com/india-news/us-wants-to-prohibit-data-localisation-top-trade-official-says-amid-looming-rbi-directive-171256">data localisation</a> argue that the move would have negative effects on the ability of companies to do business in India.

Finance Minister Arun Jaitley recently held a meeting with RBI Deputy Governor BP Kanungo and others to discuss the data localisation norm for global financial technology companies.

IT industry body Nasscom said access to information can be ensured irrespective of location of the data.

"Access can be provided even if the data is stored outside India. It is not clear how this (data localisation mandate) ties in with the overall objective of ensuring enforcement," Nasscom Senior Director and Head Public Policy Ashish Aggarwal said.

Moreover, the instances of problems being faced in accessing data need to be seen in the larger perspective of total number of transactions.

Nasscom has favoured free flow of data, Aggarwal said adding that imposition of conditions that are "onerous and unnecessary" may trigger a retaliatory measures from other countries.

In its April monetary policy review, the RBI had said that in order to ensure better monitoring of payment service operators it was important to have "unfettered supervisory access to data stored with these system providers as also with their service providers/ intermediaries/third party vendors and other entities in the payment ecosystem".

"All system providers shall ensure that the entire data relating to payment systems operated by them are stored in a system only in India," it had said.

The RBI had further said that data should include the full end-to-end transaction details, information collected, carried, processed as part of the message, payment instruction.

As many as 80 per cent players in the payment industry, including Amazon, Paytm and WhatsApp, have complied with the norms for local storage of data, with RBI's deadline coming to close on Monday, sources said.

As many as 80 per cent players in the payment industry, including Amazon, Paytm and WhatsApp, have complied with the norms for local storage of data, with RBI's deadline coming to close on Monday, sources said. However, they said some debit/credit companies are yet to comply with data storage norms and have reportedly sought more time. The Reserve Bank is not contemplating review of its notification on data localisation norms, the sources said. In April, the central bank had given six months to global payment companies to store transaction data of Indian customers within India. Although 80 per cent of the players operating in India have complied with the Reserve Bank directive, some global financial technology companies have reportedly sought an extension to the October 15 timeline. "The RBI will look at things on a case-to-case basis from tomorrow while handling the subject," one of the sources said, without mentioning if the central bank would take action or impose penalties for non-compliance. Digital payments platform PhonePe said it has informed the Reserve Bank of India of its full compliance with the data localisation mandate to ensure payments data of Indian users is stored within the country. The central bank's data localisation policy had elicited mixed response from the payment services industry. While some of the prominent domestic payment companies like Paytm and PhonePe have been supportive of the dictum, global players like Google (that offers Google Pay) had argued for free movement of data. Some international players have appealed for more time for compliance and also asked that they be allowed to mirror the data. Paytm, which had vociferously supported data localisation, said critical data must not be allowed to go out of the country, not even for processing. "We have complied to this mandate since day one and have welcomed this initiative right from the beginning. It is important that we do not become mere internet colonies for global companies, and make every organisation accountable towards the security and privacy of data of our fellow countrymen," a Paytm spokesperson said. US-based messaging platform WhatsApp has already said it has developed a system to store payments-related data in India. An Amazon spokesperson said "compliance with local laws and regulation is a top priority for us in all the countries we operate in. We continue to work closely with the regulators towards this". Google is learnt to have agreed to follow the RBI's local data storage norm for payment services but has asked for time until December to ensure compliance, a government source had indicated recently. Critics of data localisation argue that the move would have negative effects on the ability of companies to do business in India. Finance Minister Arun Jaitley recently held a meeting with RBI Deputy Governor BP Kanungo and others to discuss the data localisation norm for global financial technology companies. IT industry body Nasscom said access to information can be ensured irrespective of location of the data. "Access can be provided even if the data is stored outside India. It is not clear how this (data localisation mandate) ties in with the overall objective of ensuring enforcement," Nasscom Senior Director and Head Public Policy Ashish Aggarwal said. Moreover, the instances of problems being faced in accessing data need to be seen in the larger perspective of total number of transactions. Nasscom has favoured free flow of data, Aggarwal said adding that imposition of conditions that are "onerous and unnecessary" may trigger a retaliatory measures from other countries. In its April monetary policy review, the RBI had said that in order to ensure better monitoring of payment service operators it was important to have "unfettered supervisory access to data stored with these system providers as also with their service providers/ intermediaries/third party vendors and other entities in the payment ecosystem". "All system providers shall ensure that the entire data relating to payment systems operated by them are stored in a system only in India," it had said. The RBI had further said that data should include the full end-to-end transaction details, information collected, carried, processed as part of the message, payment instruction.

Google, WhatsApp must comply with India's data localisation policy, says RBI as deadline ends

The US wants to prohibit data localisation to ensure that there is a free flow of information across borders, a senior Trump administration official has said, amidst reports that major American IT companies are up in arms against the latest Indian directive which kicks off next week.

Data localisation is an act of storing data on any device that is physically present within the borders of a particular country where the data was generated. 
The Reserve Bank of India (RBI), in a circular in April, said all system providers will have to ensure that the entire data relating to payment systems operated by them are stored in a system only in India. It gave time till October 15 to comply with the mandate.

"We want to have prohibitions on data localisation to ensure that there's free flow of information, free flow of data across borders, disciplines around countries requiring companies to give up their source code, permanent ban on taxation or duties on digital transmissions," Dennis Shea, Deputy US Trade Representative and US Ambassador to the WTO, told a Washington audience on Friday.

"And by the way, South Africa and India want to rethink the current moratorium on those duties," Shea said in response to a question at the Center for Strategic and International Studies (CSIS), a top American think-tank.

American financial companies are believed to have approached the administration against an RBI directive which, beginning October 15, requires them to store in India any payment-related data from transactions that take place inside the country.

India has rejected their request of mirroring.

"If implemented, this policy will put an unnecessary burden on American companies and hurt consumers, who will endure higher costs and increased cybersecurity risks," Republican Strategist Andy Surabian, who is also a political adviser to Donald Trump Jr, wrote in BreitBart News this week.

"And they are planning to do all of this in spite of the unprecedented level of economic support the US has provided India over the course of decades. The Trump administration should stand up to these reckless actions, just like they have done in other situations when Americans were getting bullied and pushed around," Surabian demanded.

During his CSIS appearance, Shea did not specifically pointed out India on the data localisation issue, but made his views pretty clear where the Trump administration stands on this issue.

Shea said the US is very engaged at the multilateral issue and has a very high-ambition approach to that.

The general view is that the negotiation part of this process may begin early next year, or perhaps a ministerial statement around Davos.

Other members of the WTO, he said, have lower ambitions so "how this works out still remains to be seen," he added.

Mobile messaging platform WhatsApp has said it has built a system that stores payments-related data in India, in line with RBI's data localisation policy.&nbsp; 
&nbsp;

The US wants to prohibit data localisation to ensure that there is a free flow of information across borders, a senior Trump administration official has said, amidst reports that major American IT companies are up in arms against the latest Indian directive which kicks off next week.

The US wants to prohibit data localisation to ensure that there is a free flow of information across borders, a senior Trump administration official has said, amidst reports that major American IT companies are up in arms against the latest Indian directive which kicks off next week. Data localisation is an act of storing data on any device that is physically present within the borders of a particular country where the data was generated. The Reserve Bank of India (RBI), in a circular in April, said all system providers will have to ensure that the entire data relating to payment systems operated by them are stored in a system only in India. It gave time till October 15 to comply with the mandate. "We want to have prohibitions on data localisation to ensure that there's free flow of information, free flow of data across borders, disciplines around countries requiring companies to give up their source code, permanent ban on taxation or duties on digital transmissions," Dennis Shea, Deputy US Trade Representative and US Ambassador to the WTO, told a Washington audience on Friday. "And by the way, South Africa and India want to rethink the current moratorium on those duties," Shea said in response to a question at the Center for Strategic and International Studies (CSIS), a top American think-tank. American financial companies are believed to have approached the administration against an RBI directive which, beginning October 15, requires them to store in India any payment-related data from transactions that take place inside the country. India has rejected their request of mirroring. "If implemented, this policy will put an unnecessary burden on American companies and hurt consumers, who will endure higher costs and increased cybersecurity risks," Republican Strategist Andy Surabian, who is also a political adviser to Donald Trump Jr, wrote in BreitBart News this week. "And they are planning to do all of this in spite of the unprecedented level of economic support the US has provided India over the course of decades. The Trump administration should stand up to these reckless actions, just like they have done in other situations when Americans were getting bullied and pushed around," Surabian demanded. During his CSIS appearance, Shea did not specifically pointed out India on the data localisation issue, but made his views pretty clear where the Trump administration stands on this issue. Shea said the US is very engaged at the multilateral issue and has a very high-ambition approach to that. The general view is that the negotiation part of this process may begin early next year, or perhaps a ministerial statement around Davos. Other members of the WTO, he said, have lower ambitions so "how this works out still remains to be seen," he added. Mobile messaging platform WhatsApp has said it has built a system that stores payments-related data in India, in line with RBI's data localisation policy.

US wants to prohibit data localisation, top trade official says amid looming RBI directive

The Reserve Bank of India (RBI) will implement in full its directive that forces global payment companies to store data locally from this month, four sources told Reuters, a blow to the firms who had lobbied to dilute the measure.

The RBI in April said all payments data should within six months be stored only in the country for "unfettered supervisory access". The deadline for the companies to adhere is October 15.

The directive is part of a wider push by India to ask companies to store more of their data locally at a time when governments globally are enforcing more stringent rules to protect user data. &nbsp;

However, the global payments companies fear the new rules would increase their infrastructure costs, hit their global fraud detection analytic platforms and affect planned investments in the country at a time when more and more Indians are using digital modes of payments.&nbsp;

Firms such as Mastercard, Visa and American Express have in recent months met with Indian policymakers, including Finance Minister Arun Jaitley, to push for an extension of the RBI`s deadline.

They also repeatedly sought dilution of the RBI directive, requesting that they be allowed to store data both locally and at their offshore offices, a practice widely known as 'data mirroring'.

But in a meeting between RBI officials and US&nbsp;payment companies in Mumbai on Wednesday, central bank officials said the industry will need to store all their data only within the country, as per its April directive, and said data mirroring will not be allowed, four sources aware of the discussions said.

"They specifically said no mirroring, the meeting was bad (for the industry), it`s pretty clear," said one of the industry sources.

The RBI also conveyed in the meeting it was not willing to extend the deadline for compliance to the directive, the sources said.

The RBI did not immediately respond to a request for comment. Mastercard, Visa and American Express also did not respond.

Government sources have previously told Reuters that stringent data localisation measures were essential for gaining easier access to data during investigations.&nbsp;

Whatsapp has built a system to store its payment data locally, the company said on Tuesday. The Facebook-owned messenger had begun testing its payments service in India and is keen to deepen its reach.

It was easier for companies such as Whatsapp, which have a relatively smaller-scale payments platform in India, to comply with the central bank directive, but the bigger payment firms will need more time, one of the sources said.

"The bigger companies will have to change a lot of things such as setting up servers and replicating payment processing tools," the source said. 
Another source, who works at a multinational payment company, said moving and storing its data only in India would take at least 12-18 months.

The Reserve Bank of India (RBI) will implement in full its directive that forces global payment companies to store data locally from this month, four sources told Reuters, a blow to the firms who had lobbied to dilute the measure.

The Reserve Bank of India (RBI) will implement in full its directive that forces global payment companies to store data locally from this month, four sources told Reuters, a blow to the firms who had lobbied to dilute the measure. The RBI in April said all payments data should within six months be stored only in the country for "unfettered supervisory access". The deadline for the companies to adhere is October 15. The directive is part of a wider push by India to ask companies to store more of their data locally at a time when governments globally are enforcing more stringent rules to protect user data. However, the global payments companies fear the new rules would increase their infrastructure costs, hit their global fraud detection analytic platforms and affect planned investments in the country at a time when more and more Indians are using digital modes of payments. Firms such as Mastercard, Visa and American Express have in recent months met with Indian policymakers, including Finance Minister Arun Jaitley, to push for an extension of the RBI`s deadline. They also repeatedly sought dilution of the RBI directive, requesting that they be allowed to store data both locally and at their offshore offices, a practice widely known as 'data mirroring'. But in a meeting between RBI officials and US payment companies in Mumbai on Wednesday, central bank officials said the industry will need to store all their data only within the country, as per its April directive, and said data mirroring will not be allowed, four sources aware of the discussions said. "They specifically said no mirroring, the meeting was bad (for the industry), it`s pretty clear," said one of the industry sources. The RBI also conveyed in the meeting it was not willing to extend the deadline for compliance to the directive, the sources said. The RBI did not immediately respond to a request for comment. Mastercard, Visa and American Express also did not respond. Government sources have previously told Reuters that stringent data localisation measures were essential for gaining easier access to data during investigations. Whatsapp has built a system to store its payment data locally, the company said on Tuesday. The Facebook-owned messenger had begun testing its payments service in India and is keen to deepen its reach. It was easier for companies such as Whatsapp, which have a relatively smaller-scale payments platform in India, to comply with the central bank directive, but the bigger payment firms will need more time, one of the sources said. "The bigger companies will have to change a lot of things such as setting up servers and replicating payment processing tools," the source said. Another source, who works at a multinational payment company, said moving and storing its data only in India would take at least 12-18 months.

RBI sticking with plan to force payments firms to store data locally: Report

India's retail inflation likely sped up in September on higher food and fuel costs, pushed up by a battered rupee and suggesting further policy tightening from the Reserve Bank of India, a Reuters poll found.

The Indian central bank last week held interest rates unchanged, surprising many market watchers who anticipated a third consecutive hike, but shifted its stance from "neutral" to "calibrated tightening" in a nod to pricing pressures.

The median of 45 economists in the poll taken Oct. 3-9 showed inflation was expected to have accelerated to the central bank's medium-term target of 4.00 per cent last month from a year ago, higher than August's 10-month low of 3.69 per cent.

Forecasts ranged from 3.60 per cent to 4.70 per cent, with over 40 per cent of economists expecting inflation to rise above the RBI's target, almost one-third forecast it to fall below target and the remaining 11 said it would be bang on 4.00 per cent.

"Consumer price inflation is likely to have risen in September, in large part because the recent sharp fall in food inflation appears to have reversed," said Shilan Shah, a senior India economist at Capital Economics.

"Core inflation is likely to have remained elevated. Despite the RBI keeping rates on hold last week, the tightening cycle still has a little bit further to run."

Although food inflation has quickened it was subdued enough to offset some of the pain coming from the double whammy of a weak currency and rising oil prices.

The rupee tumbled to a new low of 74.395 against the US&nbsp;dollar on Tuesday and Brent crude, India's costliest import item, hit a four-year high this month.

According to a separate Reuters poll, the struggling rupee, which has lost over 16 per cent against the greenback this year so far, was not expected to reverse its losses anytime soon.

"India's macro concern at the moment is not the rupee, but liquidity. If the RBI takes care of liquidity, then other concerns should gradually subside," said Shashank Mendiratta, economist at ANZ Bank.

"The RBI to that extent has taken steps to infuse liquidity by announcing OMOs (open market operations) and the similar measure will be taken up through this fiscal year."

Wholesale price inflation probably rose to 4.90 per cent in September from 4.53 per cent in August.

The poll forecast industrial output expanded 4.0 per cent in August from a year ago compared with 6.6 per cent in July.

That prediction was probably based on slower output growth from eight core industries - accounting for nearly 40 per cent of total industrial production - with annual production cooling to 4.2 per cent in August, from 7.3 per cent a month earlier.

India's retail inflation likely sped up in September on higher food and fuel costs, pushed up by a battered rupee and suggesting further policy tightening from the Reserve Bank of India, a Reuters poll found.

India's retail inflation likely sped up in September on higher food and fuel costs, pushed up by a battered rupee and suggesting further policy tightening from the Reserve Bank of India, a Reuters poll found. The Indian central bank last week held interest rates unchanged, surprising many market watchers who anticipated a third consecutive hike, but shifted its stance from "neutral" to "calibrated tightening" in a nod to pricing pressures. The median of 45 economists in the poll taken Oct. 3-9 showed inflation was expected to have accelerated to the central bank's medium-term target of 4.00 per cent last month from a year ago, higher than August's 10-month low of 3.69 per cent. Forecasts ranged from 3.60 per cent to 4.70 per cent, with over 40 per cent of economists expecting inflation to rise above the RBI's target, almost one-third forecast it to fall below target and the remaining 11 said it would be bang on 4.00 per cent. "Consumer price inflation is likely to have risen in September, in large part because the recent sharp fall in food inflation appears to have reversed," said Shilan Shah, a senior India economist at Capital Economics. "Core inflation is likely to have remained elevated. Despite the RBI keeping rates on hold last week, the tightening cycle still has a little bit further to run." Although food inflation has quickened it was subdued enough to offset some of the pain coming from the double whammy of a weak currency and rising oil prices. The rupee tumbled to a new low of 74.395 against the US dollar on Tuesday and Brent crude, India's costliest import item, hit a four-year high this month. According to a separate Reuters poll, the struggling rupee, which has lost over 16 per cent against the greenback this year so far, was not expected to reverse its losses anytime soon. "India's macro concern at the moment is not the rupee, but liquidity. If the RBI takes care of liquidity, then other concerns should gradually subside," said Shashank Mendiratta, economist at ANZ Bank. "The RBI to that extent has taken steps to infuse liquidity by announcing OMOs (open market operations) and the similar measure will be taken up through this fiscal year." Wholesale price inflation probably rose to 4.90 per cent in September from 4.53 per cent in August. The poll forecast industrial output expanded 4.0 per cent in August from a year ago compared with 6.6 per cent in July. That prediction was probably based on slower output growth from eight core industries - accounting for nearly 40 per cent of total industrial production - with annual production cooling to 4.2 per cent in August, from 7.3 per cent a month earlier.

India inflation likely rose to RBI's four percent target in September: Poll

Every monetary policy meeting gives rise to a debate over whether the RBI should increase interest rates. This time, too, it is not different as the external environment, equity markets, credit markets and the general sentiment are down. The rupee is falling, oil price is rising and stock markets are searching for a bottom.

Over the past few weeks, the whole financial system in India has been going through a turmoil. The upheaval was triggered by defaults at Infrastructure Leasing and Financial Services Ltd (IL&amp;FS), and other Non-Banking Financial Company (NBFC) and Housing Finance Companies (HFC). The Central government took prompt action by superseding the IL&amp;FS board and is trying hard to bring in a Satyam-like resolution to the problem. For the time being, the fear and rumours have been nipped in the bud.

IL&amp;FS was one of the largest Infrastructure lenders in the country and a default by it has disturbed the well-oiled Commercial Paper (CP) market. CP is a short-term financial instrument used by corporates to raise money from a few days to a year. Banks and mutual funds are main investors in CPs. The total outstanding CP issuance by all corporates as on September 15, 2018, is Rs 6,40,000 crore, out of which, more than 60 per cent is raised by NBFC and HFC. CP is a preferred mode of raising short-term money for companies as it offers lower interest rates when compared to banks interest rate for loans.

 
Post the IL&amp;FS default on their repayment of CP, large investors have withdrawn from the CP market. They are scared of further defaults and losing their investment. This has led to liquidity drying up for NBFC and HFCs. Now, why is it important that the CP markets remain well oiled? After 11 PSU banks were put under Prompt Corrective Action (PCA) by the RBI, there were further restrictions on these banks on new lending. This opened up the opportunity for NBFC and HFC to capture this market and bridge the need by corporates. After all the raw material for NBFC and HFC is ‘money’ and when the flow of money dries up so does the finished goods and, in this case, lending slows down by NBFC and HFC. Hence, even if the IL&amp;FS issue is sorted, it may take nearly a quarter for the investors to start lending again at the same pace as they were doing before the problem started. This will obviously slow down NBFCs growth and also credit flow into the economy.

Meanwhile, the Consumer Price Inflation (CPI) was at 3.69 per cent, which is well under the RBI’s targeted inflation rate of 4 per cent. It is remarkable that even after the increase in MSP and oil prices, the Consumer Price Inflation for March 2019 is expected to be around 4.70 per cent and for the full year average of 4.40 per cent to 4.50 per cent. This is within the stated range of inflation targeted by RBI. The CPI is expected to be low mainly due to low food inflation and MSP benefit being passed on to the farmer directly, thus as per the stated policy of keeping interest rates 2 per cent over the average CPI inflation has already been achieved.

While inflation is under control, the speed with which the Indian Rupee (INR) is falling against the dollar is a cause of concern. Countries like Turkey, Argentina and Indonesia have tried to address currency depreciation by hiking the interest rate and have failed miserably. Addressing the currency depreciation with interest rate hike is a very blunt tool. India’s currency woes need to be solved by taking more concrete steps toward containing the Current Account Deficit (CAD). But factors like crude prices are beyond the control of the India government. Though the steps taken by the government to reduce petrol and diesel prices by Rs 2.50 per litre are welcome, maybe it’s time to adopt new measures to curtail the overall fuel consumption through innovative means.

RBI has raised REPO rates twice this year from 6 per cent to 6.25 per cent in June and 6.50 per cent in August. By doing this RBI has moved along with the interest rate curve. The government securities market is extremely nervous and is already trading substantially higher to the long-term average spreads of 100 bps over Repo rate. The 10-year government security bond is being traded at 8.20 per cent which is a spread of 170 bps higher. This is an unusually high interest rate for a government to borrow from the market. The borrowing cost of the government is growing rapidly and high-interest rates can dent the future growth of the country. Even from real interest rate perspective, RBI is targeting a positive interest rate of 1.50 per cent to 2 per cent, whereas we are already in positive interest rate territory at 3.36 per cent as per the current bond rates pricing in the market.

In such a scenario it is time for the RBI to be bold and brave. The first steps taken by RBI towards resolving this situation was announcing Rs 36,000 crore of open market operations (ie, buying government bonds from open market). This basically helps in infusing much-needed liquidity into the debt markets. The money markets need assurances to soothe and calm the nerves of its investors so that liquidity can come back to these markets.

Government steps toward resolving IL&amp;FS and RBI’s Open Market Operation announcement is in the correct direction. Raising interest rates after two consecutive rate hikes may not be an effective way to stop the rupee from depreciating further. Especially when the inflation is not showing any signs of running away. However, by keeping the interest rates steady and a neutral liquidity position with a bias towards easy liquidity when the markets require it, may help the markets to calm down its nerves, along with removing some of the PCA restrictions on PSU banks could keep the financial engine chugging. 
 
 
(The author is the promoter-director of Sunidhi Securities &amp; Finance Ltd)

(This article was originally published on DNA. Read the <a href="https://www.dnaindia.com/analysis/column-markets-need-rbi-s-assurance-2671660">original article</a>)

(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)

 
&nbsp;

Every monetary policy meeting gives rise to a debate over whether the RBI should increase interest rates. This time, too, it is not different as the external environment, equity markets, credit markets and the general sentiment are down.

Every monetary policy meeting gives rise to a debate over whether the RBI should increase interest rates. This time, too, it is not different as the external environment, equity markets, credit markets and the general sentiment are down. The rupee is falling, oil price is rising and stock markets are searching for a bottom. Over the past few weeks, the whole financial system in India has been going through a turmoil. The upheaval was triggered by defaults at Infrastructure Leasing and Financial Services Ltd (IL&FS), and other Non-Banking Financial Company (NBFC) and Housing Finance Companies (HFC). The Central government took prompt action by superseding the IL&FS board and is trying hard to bring in a Satyam-like resolution to the problem. For the time being, the fear and rumours have been nipped in the bud. IL&FS was one of the largest Infrastructure lenders in the country and a default by it has disturbed the well-oiled Commercial Paper (CP) market. CP is a short-term financial instrument used by corporates to raise money from a few days to a year. Banks and mutual funds are main investors in CPs. The total outstanding CP issuance by all corporates as on September 15, 2018, is Rs 6,40,000 crore, out of which, more than 60 per cent is raised by NBFC and HFC. CP is a preferred mode of raising short-term money for companies as it offers lower interest rates when compared to banks interest rate for loans. Post the IL&FS default on their repayment of CP, large investors have withdrawn from the CP market. They are scared of further defaults and losing their investment. This has led to liquidity drying up for NBFC and HFCs. Now, why is it important that the CP markets remain well oiled? After 11 PSU banks were put under Prompt Corrective Action (PCA) by the RBI, there were further restrictions on these banks on new lending. This opened up the opportunity for NBFC and HFC to capture this market and bridge the need by corporates. After all the raw material for NBFC and HFC is ‘money’ and when the flow of money dries up so does the finished goods and, in this case, lending slows down by NBFC and HFC. Hence, even if the IL&FS issue is sorted, it may take nearly a quarter for the investors to start lending again at the same pace as they were doing before the problem started. This will obviously slow down NBFCs growth and also credit flow into the economy. Meanwhile, the Consumer Price Inflation (CPI) was at 3.69 per cent, which is well under the RBI’s targeted inflation rate of 4 per cent. It is remarkable that even after the increase in MSP and oil prices, the Consumer Price Inflation for March 2019 is expected to be around 4.70 per cent and for the full year average of 4.40 per cent to 4.50 per cent. This is within the stated range of inflation targeted by RBI. The CPI is expected to be low mainly due to low food inflation and MSP benefit being passed on to the farmer directly, thus as per the stated policy of keeping interest rates 2 per cent over the average CPI inflation has already been achieved. While inflation is under control, the speed with which the Indian Rupee (INR) is falling against the dollar is a cause of concern. Countries like Turkey, Argentina and Indonesia have tried to address currency depreciation by hiking the interest rate and have failed miserably. Addressing the currency depreciation with interest rate hike is a very blunt tool. India’s currency woes need to be solved by taking more concrete steps toward containing the Current Account Deficit (CAD). But factors like crude prices are beyond the control of the India government. Though the steps taken by the government to reduce petrol and diesel prices by Rs 2.50 per litre are welcome, maybe it’s time to adopt new measures to curtail the overall fuel consumption through innovative means. RBI has raised REPO rates twice this year from 6 per cent to 6.25 per cent in June and 6.50 per cent in August. By doing this RBI has moved along with the interest rate curve. The government securities market is extremely nervous and is already trading substantially higher to the long-term average spreads of 100 bps over Repo rate. The 10-year government security bond is being traded at 8.20 per cent which is a spread of 170 bps higher. This is an unusually high interest rate for a government to borrow from the market. The borrowing cost of the government is growing rapidly and high-interest rates can dent the future growth of the country. Even from real interest rate perspective, RBI is targeting a positive interest rate of 1.50 per cent to 2 per cent, whereas we are already in positive interest rate territory at 3.36 per cent as per the current bond rates pricing in the market. In such a scenario it is time for the RBI to be bold and brave. The first steps taken by RBI towards resolving this situation was announcing Rs 36,000 crore of open market operations (ie, buying government bonds from open market). This basically helps in infusing much-needed liquidity into the debt markets. The money markets need assurances to soothe and calm the nerves of its investors so that liquidity can come back to these markets. Government steps toward resolving IL&FS and RBI’s Open Market Operation announcement is in the correct direction. Raising interest rates after two consecutive rate hikes may not be an effective way to stop the rupee from depreciating further. Especially when the inflation is not showing any signs of running away. However, by keeping the interest rates steady and a neutral liquidity position with a bias towards easy liquidity when the markets require it, may help the markets to calm down its nerves, along with removing some of the PCA restrictions on PSU banks could keep the financial engine chugging. (The author is the promoter-director of Sunidhi Securities & Finance Ltd) (This article was originally published on DNA. Read the original article) (Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)

Markets need RBI’s assurance

The continuing downfall of Rupee has led to the Indian currency breaching the 74-mark against US dollar for the first time. The Reserve Bank of India (RBI), in a surprise move, kept the key rates unchanged which many analysts feel is the reason for Rupee's further fall.

The rupee has tanked 14 per cent against the dollar this year as investors withdraw from emerging markets.

The RBI raised rates in June and August in part to help shore up the currency, which started 2018 at 63.67 to the dollar.

The partially convertible rupee had hit a <a href="http://www.wionews.com/business-economy/rupee-crashes-to-all-time-low-of-7381-on-capital-outflows-surging-oil-prices-169479">life-time low</a> of 73.81 per dollar on Thursday before recovering to 73.62 later in the day.

Confidence has ebbed in India's markets in recent weeks. The rupee has set all-time lows, bonds are at their weakest since November 2014, and share markets have suffered a sharp correction after hitting record highs in August.

A liquidity scare erupted last month after a series of debt defaults by <a href="http://www.wionews.com/business-economy/new-board-to-consider-all-options-to-revive-ilfs-169502">Infrastructure Leasing &amp; Financial Services</a> (IL&amp;FS) sparked redemption pressure at other shadow banking companies.

And dollar selling by the RBI to support the rupee has put a further squeeze on rupee liquidity.

Rising global oil prices, they climbed two per cent on Wednesday to hit a four year-high, are bad news for importing nations like India.

The current account has faced additional pressure as India, like many emerging market economies, has also suffered due to rising US interest rates drawing investors away.

(With inputs from Reuters)

The continuing downfall of Rupee has led to the Indian currency breaching the 74-mark against US dollar for the first time. The Reserve Bank of India (RBI), in a surprise move, kept the key rates unchanged which many analysts feel is the reason for Rupee's further fall.

The continuing downfall of Rupee has led to the Indian currency breaching the 74-mark against US dollar for the first time. The Reserve Bank of India (RBI), in a surprise move, kept the key rates unchanged which many analysts feel is the reason for Rupee's further fall. The rupee has tanked 14 per cent against the dollar this year as investors withdraw from emerging markets. The RBI raised rates in June and August in part to help shore up the currency, which started 2018 at 63.67 to the dollar. The partially convertible rupee had hit a life-time low of 73.81 per dollar on Thursday before recovering to 73.62 later in the day. Confidence has ebbed in India's markets in recent weeks. The rupee has set all-time lows, bonds are at their weakest since November 2014, and share markets have suffered a sharp correction after hitting record highs in August. A liquidity scare erupted last month after a series of debt defaults by Infrastructure Leasing & Financial Services (IL&FS) sparked redemption pressure at other shadow banking companies. And dollar selling by the RBI to support the rupee has put a further squeeze on rupee liquidity. Rising global oil prices, they climbed two per cent on Wednesday to hit a four year-high, are bad news for importing nations like India. The current account has faced additional pressure as India, like many emerging market economies, has also suffered due to rising US interest rates drawing investors away. (With inputs from Reuters)

Rupee breaches 74-mark for first time as RBI keeps key rates unchanged