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India Equity Research Reports, IPO and Stock News
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Key Takeaways
Core essence: Interest rates will remain a function of inflation. Even if FY12 growth
slows down a bit, there would be no major adverse impact on corporate profitability
and investment climate.
On global risk
India cannot be decoupled from the world economy and global downturn would
affect us. However, nobody knows its full impact or shape of things to come as these
crisis happens once in many decades.
On inflation and growth
Inflation to come down: Inflation would need to come down on its own as per
the trajectory given by RBI in this regard. Improved productivity and removal of
supply-side constraints are the only enduring solutions to control inflation.
Rising rates to protect savings: RBI's anti-inflationary measures do not imply
that it takes growth for granted. However, as long as inflation remains high, RBI
would need to take appropriate measures. The real interest rates should be high
enough to attract the savers to park their funds into deposits rather than other
forms of saving. In an inflationary environment banks would start raising rates even
if RBI does not.
Growth outlook: Growth should be 8% in FY12 and is achievable; but even if it is
a bit lower, there would be no adverse impact on corporate profitability and investment
climate.
On monetary transmission
International experience: Worldwide, monetary transmission has been found to
have worked imperfectly, depending upon the environment.
Indian lag: In India the response at the shorter end of the market has been found
to be immediate. It is also believed that the longer end responds with a lag of 3-6
months.
Asymmetric response from banks: However, the response of the banks have
been found to be asymmetric in the two situations of rising and falling interest
rates. While banks have been prompt in their response in a rising interest rate
scenario, the lag is more in case of falling interest rate.
On exchange rate
No target: RBI does not have any target for Rupee and intervenes only to curb
volatility in the exchange rate market
No micro management: Isolated events, e.g., oil price movement, payments to Iran,
etc. do not shape exchange rate policy.
On data issues
There are several data issues that affect policy making, mainly inflation data and trade
data.
CPI v/s WPI: As far as issues between WPI and CPI is concerned, there are multiple
CPI indices that are available and over a longer period there is a convergence.
Trade data: Similarly, data related to exports and imports need to be taken as an input
for policy even if it deviates from trend after six months.
On savings rate de-regulation
Desirable: Deregulation is being discussed to protect the interest of depositors.
Not much impact: Interest rates, and even more so average cost of deposits may not
go up very significantly as a result of deregulation.
On securitization and priority sector lending
KYC: If the bank is buying a portfolio from an NBFC, they must demonstrate that KYC is
in place and that the portfolio is for priority sector lending.
Pricing: Pricing of the securitized portfolio should largely be similar to the existing
portfolio of priority sector. Various other conditions should also be considered like true
sale, maturity of the asset, etc.
New guidelines: RBI expects to release new guidelines on securitization and priority
sector shortly.
On asset quality
Not a concern: Asset quality is not a great concern till GDP growth is 7.5%+.
Various measures to ensure financial stability: RBI will ensure financial stability
and consider various regulations from time to time. 70% PCR requirement, increased
provisioning requirement in various buckets of NPAs are some of such examples.
Farm waiver and moral hazard: Dr Chakrabarty specifically denied that farm waiver
scheme has led to moral hazard as (1) the design of the scheme was targeted, and (2)
the failure to repay had arisen out of extraordinary conditions.
Competition and bank licensing
Necessary …: Competition in the banking sector would enhance customer service.
… but based on proper criteria: However, fit and proper criteria are critical for
issuing new bank licenses.
Dr K C Chakrabarty is the Deputy
Governor of Reserve Bank of India
(RBI). He is a seasoned banker, with
an accomplished banking career
spanning over three decades. Dr
Chakrabarty has earlier graced the
seat of Chairman & Managing
Director (CMD) for Punjab National
Bank and before that, for Indian
Bank. He has had a long and
distinguished career of 26 years at
the Bank of Baroda in various
capacities. He has also been the
Chairman of the Indian Banks'
Association (IBA) for a brief period.
Dr Chakrabarty's current
assignments include guiding and
overseeing the areas pertaining to
Rural and Urban Cooperative Banks,
Information Technology, Payment
and Settlement Systems, Customer
Services, Human Resource and
Personnel Management at the
Reserve Bank of India. He
represents India in the Committee
of Payment and Settlement Systems
(CPSS) constituted by Bank for
International Settlements (BIS) as a
Member. Dr Chakrabarty is also the
RBI Nominee on the Board of
Directors of NABARD and the
Chairman of the Institute for
Development and Research in
Banking Technology (IDRBT).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
Core essence: Interest rates will remain a function of inflation. Even if FY12 growth
slows down a bit, there would be no major adverse impact on corporate profitability
and investment climate.
On global risk
India cannot be decoupled from the world economy and global downturn would
affect us. However, nobody knows its full impact or shape of things to come as these
crisis happens once in many decades.
On inflation and growth
Inflation to come down: Inflation would need to come down on its own as per
the trajectory given by RBI in this regard. Improved productivity and removal of
supply-side constraints are the only enduring solutions to control inflation.
Rising rates to protect savings: RBI's anti-inflationary measures do not imply
that it takes growth for granted. However, as long as inflation remains high, RBI
would need to take appropriate measures. The real interest rates should be high
enough to attract the savers to park their funds into deposits rather than other
forms of saving. In an inflationary environment banks would start raising rates even
if RBI does not.
Growth outlook: Growth should be 8% in FY12 and is achievable; but even if it is
a bit lower, there would be no adverse impact on corporate profitability and investment
climate.
On monetary transmission
International experience: Worldwide, monetary transmission has been found to
have worked imperfectly, depending upon the environment.
Indian lag: In India the response at the shorter end of the market has been found
to be immediate. It is also believed that the longer end responds with a lag of 3-6
months.
Asymmetric response from banks: However, the response of the banks have
been found to be asymmetric in the two situations of rising and falling interest
rates. While banks have been prompt in their response in a rising interest rate
scenario, the lag is more in case of falling interest rate.
On exchange rate
No target: RBI does not have any target for Rupee and intervenes only to curb
volatility in the exchange rate market
No micro management: Isolated events, e.g., oil price movement, payments to Iran,
etc. do not shape exchange rate policy.
On data issues
There are several data issues that affect policy making, mainly inflation data and trade
data.
CPI v/s WPI: As far as issues between WPI and CPI is concerned, there are multiple
CPI indices that are available and over a longer period there is a convergence.
Trade data: Similarly, data related to exports and imports need to be taken as an input
for policy even if it deviates from trend after six months.
On savings rate de-regulation
Desirable: Deregulation is being discussed to protect the interest of depositors.
Not much impact: Interest rates, and even more so average cost of deposits may not
go up very significantly as a result of deregulation.
On securitization and priority sector lending
KYC: If the bank is buying a portfolio from an NBFC, they must demonstrate that KYC is
in place and that the portfolio is for priority sector lending.
Pricing: Pricing of the securitized portfolio should largely be similar to the existing
portfolio of priority sector. Various other conditions should also be considered like true
sale, maturity of the asset, etc.
New guidelines: RBI expects to release new guidelines on securitization and priority
sector shortly.
On asset quality
Not a concern: Asset quality is not a great concern till GDP growth is 7.5%+.
Various measures to ensure financial stability: RBI will ensure financial stability
and consider various regulations from time to time. 70% PCR requirement, increased
provisioning requirement in various buckets of NPAs are some of such examples.
Farm waiver and moral hazard: Dr Chakrabarty specifically denied that farm waiver
scheme has led to moral hazard as (1) the design of the scheme was targeted, and (2)
the failure to repay had arisen out of extraordinary conditions.
Competition and bank licensing
Necessary …: Competition in the banking sector would enhance customer service.
… but based on proper criteria: However, fit and proper criteria are critical for
issuing new bank licenses.
Dr K C Chakrabarty is the Deputy
Governor of Reserve Bank of India
(RBI). He is a seasoned banker, with
an accomplished banking career
spanning over three decades. Dr
Chakrabarty has earlier graced the
seat of Chairman & Managing
Director (CMD) for Punjab National
Bank and before that, for Indian
Bank. He has had a long and
distinguished career of 26 years at
the Bank of Baroda in various
capacities. He has also been the
Chairman of the Indian Banks'
Association (IBA) for a brief period.
Dr Chakrabarty's current
assignments include guiding and
overseeing the areas pertaining to
Rural and Urban Cooperative Banks,
Information Technology, Payment
and Settlement Systems, Customer
Services, Human Resource and
Personnel Management at the
Reserve Bank of India. He
represents India in the Committee
of Payment and Settlement Systems
(CPSS) constituted by Bank for
International Settlements (BIS) as a
Member. Dr Chakrabarty is also the
RBI Nominee on the Board of
Directors of NABARD and the
Chairman of the Institute for
Development and Research in
Banking Technology (IDRBT).
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