The high point of 2012 was Indian central bank’s resounding victory over inflation. After a three-year dogged fight, the Reserve Bank of India (RBI) was finally able to bottle the inflation genie that was hurting growth in Asia’s third largest economy, paving the way for an expansive monetary policy. The wholesale price inflation dropped to a decade low and retail inflation, though relatively high, slipped considerably.
Finance minister P. Chidambaram has kept his word. He has pushed through an amendment to banking laws in Parliament to strengthen regulatory powers of the Reserve Bank of India (RBI) even if that meant dropping a clause in the Bill that would have allowed commercial banks’ entry into commodity futures trading.
Crisil Ltd,India’s oldest rating agency, doesn’t call itself a rating agency any more. Its chief executive and managing director Roopa Kudva prefers to call Crisil a global analytical company providing ratings, research, risk and policy advisory services as rating accounts for just one-third of its business. The rating business roughly accounts for one-third of its revenue, and the contribution of overseas and domestic operations is 50:50.
It is fairly certain that the Reserve Bank of India (RBI) will leave key interest rates unchanged in its monetary policy review on Tuesday. In fact, in the October policy statement, the central bank made it clear that rates may be eased only in the fourth quarter of the fiscal, beginning January. Since the next policy meeting after the 18 December review is in January, RBI is expected to cut rates then, given the fact that wholesale price inflation in Asia’s third largest economy is easing and the government, despite political resistance, is serious about pushing economic reforms—two necessary preconditions for cutting rates.
The government may have persuaded the opposition to agree to the amendment of the country’s banking law, a move that, among other things, will pave the way for the banking regulator to issue new banking licences. The amended law seeks to empower the Reserve Bank of India (RBI) to supersede a rogue bank’s board, something the regulator cannot do now. RBI wants the power as a precondition for allowing large industrial houses to promote banks.
India’s banking system is not in the pink of health. Rating agency Moody’s Investors Service reminded us of this last week by maintaining its negative outlook on Indian banks against the backdrop of slow economic growth, high inflation, high interest rates and a weak rupee. The credit assessor had lowered its outlook to negative from stable in November 2011.
From 1 January, the subsidy amount for 29 of 42 welfare schemes of Indian government will go directly into the bank accounts of the beneficiaries in 51 districts across 16 states. The electronic cash transfers will be based on the 12-digit unique identification number or Aadhaar, a proof of identity and address anywhere in the country. The districts being covered in the first phase include five each in Andhra Pradesh and Maharashtra; four each in Himachal Pradesh and Jharkhand; three each in Karnataka, Madhya Pradesh, Rajasthan and Tripura; and two each in Haryana, Kerala and Sikkim.