The Tribune, Chandigarh, India

RBI leaves repo rate steady, cuts CRR by 0.25%
Sanjeev Sharma/TNS

New Delhi, October 30
The Reserve Bank of India stuck to its stand of giving priority to containing inflation and did not oblige the government and markets with a rate cut but marginally released more liquidity by cutting the cash reserve ratio by 25 basis points.

The CRR or the portion of deposits that banks have to park with the RBI now stands at 4.25 per cent, which will release additional liquidity of Rs 17,500 crore into the banking system.

In its second monetary policy review of the year announced on Tuesday, there was more bad news for the economy as the central bank cut the growth forecast for the year from 6.5% to 5.8% and raised the inflation forecast from 7% to 7.5%.

In the review RBI governor Duvvuri Subbarao underlined the need to rein in inflation. “Over the past few quarters monetary policy had to focus on inflation, even as growth risks had increased. As recent policy initiatives by the government start yielding results in terms of revitalizing activity, they will open up space for monetary policy to work in concert to stimulate growth. However, in doing so, it’s important not to lose sight of the primary objective of managing inflation and inflation expectations,” he stated.

The RBI has clearly indicated that a rate cut cycle may only start in the last quarter of this fiscal, when it expects inflation to start easing.

Huge expectations had been built up of a rate cut today

Clearly unhappy with the lack of action by the central bank, Finance Minister P. Chidambaram said growth was as much a challenge as containing inflation and the government would "walk alone" to face the challenge if it comes to that.

Industry also was not happy as it had been hoping for interest rate easing. Apex industry chamber CII said the CRR cut would help the liquidity position and also sends a signal that the RBI is softening its stand on the monetary side. With the government having started action on containing the fiscal deficit, CII said it hoped the RBI would intervene sooner than later to cut repo rates and help the process of an industrial and investment revival.

Aditya Birla Financial Services CEO Ajay Srinivasan, said the RBI is likely to cut rates, perhaps more aggressively than is currently being anticipated, beginning Q4 of the year on account of the interplay of relatively benign inflationary trends and the likelihood of prolonged slowdown in economic momentum.

No relief for home, auto loan takers?
Tribune News Service

Mumbai, October 30
Interest rates are likely to remain steady in the near term despite the central bank’s decision to reduce the cash reserve ratio by 0.25%, several bankers said here on Tuesday. They opined that cost of funds remain high despite the lower cash reserve ratio and thus would not lead to immediate softening of interest rates.

Addressing the media after the RBI's policy review, many bankers felt that interest rates are poised to fall in the coming months as the central bank grapples with growth concerns. "Lending rates are not going to come down immediately, though the rates may fall over a period of time," ICICI Bank chief Chanda Kochhar said.

Public sector State Bank of India however said it would look at lending rates afresh. "I prefer a secular reduction in lending rates with a cut in the base rate. We have already passed on the previous CRR cuts to the borrowers. However, our Alco (asset-liability committee) will be meeting in a day or two take a call on lending rate cuts," SBI chairman Pratip Chaudhuri said.

The SBI chief, who has been at loggerheads with the central bank in the past, said the 13 successive RBI rate hikes from March 2010 to October 2011 had not helped in bringing down inflation.

“... Today's high inflation is largely due to cost-push and not so much demand-pull. Trying to address that with interest rates as an instrument may not be a good idea," Chaudhuri said.

Lenders operating in the housing and car loan segments have warned borrowers would have to continue paying more for funding.

Stocks tank, RBI move threatens to leave bourses with few triggers

Mumbai, October 30
Both the Bombay Stock Exchange Sensex and the National Stock Exchange Nifty posted their biggest falls in three weeks on Tuesday after the Reserve Bank of India left the repo rate on hold and signalled no easing action would be taken until 2013, denting interest rate sensitive sectors such as banks and property.

Banks, especially state-owned ones, were further hurt after the Reserve Bank of India also increased the amount of provisioning against restructured assets for the sector to 2.75 percent from 2 percent, as part of its monetary policy review.

By keeping the repo rate unchanged at 8% because of inflation concerns, the central bank defied political pressure from the government for lower rates, turning Indian indexes into the worst performers in Asia on Tuesday.

The falls came even after the RBI cut the cash reserve ratio, or the amount of deposits that lenders must keep with the central bank, by 25 basis points to 4.25%.

"There was definitely lot of expectations in the markets for a rate cut, but people will have to wait for some more time. It is disappointing for the markets," said Srividhya Rajesh, a fund manager at Sundaram Mutual Fund in the city of Chennai.

"Whatever the government has announced on the reforms front, if they get implemented that will give some comfort to the RBI. They are waiting for that to happen."

The 30-scrip BSE benchmark index fell 1.1%, or 204.97 points, to end at 18,430.85 points, marking the biggest percentage decline since October 8.

The 50-share NSE index lost 1.2% or 67.70 points to 5,597.90, closing below 5,600 for the first time since Sept 20, and also marking the biggest fall in three weeks.

The disappointment over the RBI's decision threatens to leave stock markets with few triggers, as both indexes head for their first monthly declines since July.

The RBI saw a "reasonable likelihood" of further policy easing in the January-March quarter, according to its statement, also dashing hopes for a rate cut at its next policy review in December. — Reuters

Banking made easier for customers

Mumbai, October 30
The Reserve Bank of India on Tuesday announced a slew of measures, including a simplification of the stringent KYC (know your customer) norms, to make banking easier for the common man.

"It is proposed to review the existing KYC norms for simplifying them within the provisions of the Prevention of Money Laundering Act and international standards," the RBI said in its second quarter policy review.

The central bank also said it would launch a pilot project, using the Aadhar data collected by the Nandan Nilekani-headed Unique Identification Authority, to authenticate banking transactions at ATMs and merchant terminals.

The Aadhar biometric details can be used for banks along with the MagStripe (for reading coded information) as an additional factor of authentication for "card present" transactions, it said, adding the pilot project would be launched from November 15.

With usage of NEFT funds transfer increasing, it has been decided to have an additional batch of clearing at 0800 hours in the NEFT system from November 19, the RBI said. On cheque transactions it said its 'cheque truncation' system used for paper clearing would have a national rollout by December next year.

The RBI has decided to prepare a discussion paper on disincentivizing issuance and usage of cheques and place it for public comments by December. It has also accorded a general permission to banks for issue of co-branded debit and rupee denominated prepaid instruments, which till now had to be cleared by the RBI. — Agencies

Maruti Suzuki Q2 net down 5.41% as sales dip
TNS & Agencies

New Delhi, October 30
The crippling strike at the Maruti Suzuki India’s Manesar plant has had a major impact on the company’s earnings. The country’s largest carmaker on Tuesday posted a 5.41% decrease in net profit at Rs 227.45 crore for the quarter ended Sept 30 due to lower sales, mainly of petrol models.

The average discounts on the models, especially petrol run, were at all-time high during the July-Sept quarter.

The company had posted a net profit of Rs 240.45 crore in the corresponding period last year, Maruti Suzuki India said in a statement.

Net sales during the second quarter of this fiscal, however, went up by 8.53% to Rs 8,070.11 crore, from Rs 7,435.85 crore in the year-ago period, it added.

In the July-Sept period, vehicle sales fell 8.69% to 230,376 units from 2,52,307 units in the same period last year. Of this, the firm sold 209,954 units (222,406 units. It also exported 20,422 units (29,901 units).

Commenting on the numbers, Maruti Suzuki said: “The market showed a marked preference for diesel cars, while demand for petrol vehicles dropped sharply... The bottomline has also been impacted by lower nonoperating income during the quarter.”

Satyam Computers profit jumps 17%

Bangalore, October 30
Satyam Computer Services Ltd, in the process of a merger with parent Tech Mahindra, met expectations with a 17% rise in second-quarter profit, as customers, aiming to cut IT costs, gave it more orders.

Profits for the September quarter rose to Rs 278 crore ($51.45 million) from Rs 238 crore in the year-earlier period, Satyam said in a statement on Tuesday. That compares with analysts' estimate of Rs 273 crore, according to Thomson Reuters I/B/E/S.

India’s $100 billion-a-year software services industry earns about 75% of its revenue from the US and Europe. Australia is also an increasingly important market. — Reuters