Mumbai, June 22
Runaway inflation coupled with monetary tightening by the Reserve Bank could lead to higher interest rates on both lending and deposit sides, top bankers said.

“We are awaiting signals from the RBI. There is no doubt about a rate hike. The only questions are the quantum of increase and their timing,” IDBI Bank chairman and managing director Yogesh Agarwal
said here.

Agarwal said further monetary tightening from the apex bank was expected in the form of a repo rate hike or an increase in the cash reserve ratio (CRR) to contain double-digit inflation, now at a 13-year high.

“While the hike in CRR came as an indirect signal to banks, the increase in the repo rate was a clear signal. We will have to wait and see whether the RBI will come up with more direct signals,” Agarwal said.

A similar view was expressed by Corporation Bank chairman and managing director B. Sambamurthy who said: “There is a clear upward pressure on both lending and deposit rates... we are awaiting cues from the RBI.”

The bank is likely to meet next week to review its interest rate structure. Ballooning inflation has resulted in negative earnings for customers on their bank deposits.

In a bid to attract deposits and retain existing ones, banks will now have no option but to effect a hike in their deposit rates, which, in turn, would force them to effect a similar hike in their lending rates as well, a senior Corporation Bank official said.

“Deposits are now earning a negative interest which has made a hike imminent... we would meet soon to review our deposit rate structure once the RBI gives a signal which is expected soon,” the official said.

Bank of Baroda chairman M. D. Mallya said its asset-liability committee is scheduled to meet next week to review its rates given the “changed market conditions”.

Already a few banks, mainly in the private sector, have upped their prime lending as well as their deposit rates following the apex bank increasing CRR by 0.75 per cent and the repo rate by 0.25 per cent.

Yes Bank, Jammu and Kashmir Bank and HDFC Bank have already increased PLRs and deposit rates. While HDFC Bank announced a 0.25 per cent hike both in its PLR and deposits across various tenures, Jammu and Kashmir Bank and Yes Bank have hiked their PLRs by one per cent and 0.50 per cent respectively.

United Bank of India has raised its deposit rates by 0.25 to 0.50 per cent. The finance minister has also indicated that there was a case for more monetary measures to rein in inflation.

“These are difficult times. The government is aware of difficulties... naturally, we will have to look at stronger measures on demand and monetary sides... we will try to address to best of our abilities the demand and monetary sides and try to improve the supply side also,” he said. — PTI

New Delhi, June 22
Provident fund (PF) trustees will press for increasing the interest rates on PF to at least 12 per cent to prevent value erosion of deposits of over four crore government and non-government employees in the wake of soaring inflation.

“We would demand interest rate of around 12 per cent for the current year (2008-09),” CITU national secretary W. R. Varadarajan, who is also member of the central board of trustees of EPFO, said.

When inflation is running amok interest rate should be restored to 2,000 levels of 12 per cent, he said. Inflation rate was around 4 per cent in January 2000.

For the week ended June 7, inflation rate stood at 11.05 per cent. Presently, the government is paying interest rate of 8.5 per cent on provident fund deposits.

“If rate is not increased appropriately, it would mean erosion of hard earned money of crores of investors,” Varadarajan said, adding that the issue of interest rate would be discussed at the next board meeting scheduled on July 5.

The government had reduced the interest rate on PF to 11 per cent in July 2000 and subsequently to 9 per cent in April 2001 citing lower inflation rate, he said.

Now, when inflation is high, the board should recommend restoration of old rate, he said. — PTI

Chandigarh, June 22
With detariffing allowing greater price flexibility to general insurers, resultant price war, unrealistic discounts and lop-sided balance sheets, insurance companies can’t take it any more.

The insurance sector is awaiting the much-needed start of the correctional process to bail it out of its present situation.

Once the process starts, the discounts that are presently hovering around 80-90 per cent are likely to stabilise at around 50 per cent.

However, this is likely to happen by 2010 and may begin from the private sector, says Niraj Kumar, general manager, Oriental Insurance Company.

He states: “Detariffing began over a year ago, causing premium rates to come down heavily. The fall in rates has been unrealistic due to stiff competition. However, these are now on for too long indicating that a correction process should start soon since companies are earning less and spending more.”

The enlarging of declining lists by private players in the field is an indicator that price correction will happen.

“The hit on the balance sheet is going to show very soon. The expected increase in reserves is not happening and everybody is in the same boat. However, the public sector undertakings have higher reserves as back up compared to their private counterparts. So, the correction exercise will have to originate from private sector since they will be worse off and sustenance will become an issue,” he maintained.

While the process of correction could have started in the beginning of this year, withdrawal of internal controls by regulators at the crucial time saw companies shy away from it.

“The IRDA, which is the regulator in case of insurance companies, introduced some controls on discounts. One company flouted these, then another and so on. Everybody breached the controls and sent the discounts spiraling. However, the present situation has necessitated correction and internal controls by companies are likely to happen,” Kumar explained.

Admitting that the PSUs have lost 40 per cent market share to the private companies in the insurance field, he blames this on unethical practices of offering kickbacks to attract clients.

“They quoted low prices on non-tariff policies and asked for a share. However, they also came up with brighter ideas, quicker response time, improved client service and better technology,” he holds.

However, he is quick to add that the kickbacks have now gone, their attitude towards paying claims has taken a beating as against the PSUs which always pay up though there maybe a functional delay.

Chandigarh, June 22
As one walks through the headquarters of retailing giant Wal-Mart at Bentonville in Arkansas in the US, one comes across an interesting catch line written on walls - ‘There is only one master and that is a consumer’.

The line adopted as a core of its business philosophy has made Wal-Mart, the world’s largest retailing phenomenon with a sale worth $374.526 billion for the fiscal year ending January 31, to turn into a colossus.

Its founder Sam Walton and his wife Helen Walton made a beginning from just one variety store that was opened in 1945 at Bentonville, Arkansas.

However, Sam set up the first store bearing the name Wal-Mart in Rogers, near Bentonville, in 1962. After that there was no looking back.

Wal-Mart operates highly competitive retail industry built on a strategic sale motto "We save people money so they can live better" says its CEO Lee Scot.

The corporate that procures merchandise in bulk in huge quantity from producers and manufacturers always remains in a position to secure the goods at a best competitive price from the manufacturer or producer and sell direct to consumer through its retail stores at what it minimal possible price.

How the US has managed the unorganised retail sector that is an issue worth studying for India.

As volume of its operations is huge, retailing business remains viable for it even after selling the merchandise to consumer at minimal price compared to its competitors in the trade.

The way Wal-Mart operates, its entry in retail area in India can certainly prove to be good for consumers. Feedback and frequent communication with the consumer is company’s hallmark.

Wal Mart has established a joint venture with Bharti Enterprise to establish wholesale cash and carry and back-end-supply management operations in India.

As many as 176 million persons shop at Wal-Mart stores every week. Wal-Mart is currently ranked number one on Fortune 500 list, a position it has held in six of the past seven years.

It has about two million employees working for it the world over. It is the world’s largest single employer in corporate sector.

In areas of social responsibility also Wal-Mart is pushing hard. It has made sustainability with zero waste as its theme song.

In a short span, it has sold 192 million CFL light bulbs against a target of 100 million. It is also focusing on minimal usage of energy and natural resources.

In case it is not so done, the penal provisions contained in the FEMA Act, 1999, should become applicable in ordinary course.