30.07.2008

• Quarterly review of the credit policy by RBI
• Repo rate increased by 50 basis points to 9%.
• CRR hiked by 25 basis points to 8.75%. This is expected to suck out Rs. 9,000 crore from the system.
• The combined effect would be that interest rate sensitive sectors like banking, automobiles and real estate would be hit, as higher interest rates would hurt demand for credit, as most of the purchases in these segments would be on borrowed money.
• The PLR (Prime Lending Rate) of banks which is between 12.75% yo 13.25% at present will see a hike. Private banks’ PLR in contrast is higher at about 15%. This will also go up.
• Capital formation was at 35.9% of the GDP in FY07
• Savings grew by 34.8% in FY07
• Growth in money supply at 20% is 2.5% above the target.
• GDP growth expectations for 2008-09 lowered to 8%
• The RBI appears to be worried about the high credit deposit ratio of 82.4%. Why?
• First, it could mean that banks are over-stretching themselves to keep their loan meters ticking, especially after meeting the mandatory reserve ratios and other concessional loans.
• A high CD ratio also indicates that bank are probably messing up their asset liability equation by borrowing short term money (perhaps through the RBI’s repo window) to create a long term asset. This is highly dangerous for the health of banks.
• What do you think could be the US budget deficit?
• It was projected to be $407 bn when President Bush presented the budget in February, 2008.
• Now it is estimated to climb to a record $490 bn by 2009. This would be 3.3% of the GDP.
• EPFO selects four private fund managers
• EPFO, having about 4.5 crore workers contributing to its corpus has selected 4 private fund managers – HSBC AMC, ICICI Prudential AMC, SBI and Reliance Capital AMC as its fund managers. They would manage the about Rs. 30,000 crore annual additions to its corpus.
• Central PF Commissioner: A. Vishwanathan.
• 15^th ministerial meeting of the NAM – Non Aligned Movement
• It is going on at Tehran.
• India spoke strongly about terrorism with Pranab Mukherjee describing it as one of the most serious threats to global peace.
• Iranian President Ahmedinejad would like us believe that NAM can present an alternative to the UN Security Council.
• Big money, big sport
• Look at the figures for Beijing Olympics!
• It raked in about $1.5 bn in sponsorship fees from close to 65 advertisers. This is three times the money that Athens Olympics (2004) raised.
• Developments on the mobile number portability (MNP) regime
• You might remember that in November 2007, the government had approved the introduction of MNP. At that time it said that details would be firmed up and announced in course of time. Now it has come up with the modalities.
• An MCHA – Mobile Number Portability Clearing House Administrator - would be identified through auction route. MCHA would set up an NPDB – Number Portability Database - that will have the mobile numbers of all cellular users. All service providers will then link their networks to that NPDB.
• Surveys have shown that 25 to 50% of all mobile users in India are unhappy with their operators, and are willing to switch to another service provider if allowed to retain their number.
• India and the US pull the ‘trigger’ on WTO talks
• The ongoing mini-ministerial talks collapsed because of differences between the US and Indian positions.
• The issue was ‘triggers.’ Triggers enable developing countries to raise tariffs when imports surge. WTO Director General Pascal Lamy suggested a compromise of 40% over the average of previous three years. India rejected this on the ground that this high trigger would ensure that developing countries cannot apply higher tariffs till their farmers are ruined.
• Oil pricing issue: BK Chaturvedi committee
• There are three methods of fixing the administered price of oil. Trade parity price, import parity price and export parity price.
• Based on the recommendations of the Rangarajan Committee the government had shifted to the trade parity pricing regime from import parity regime in 2006. In trade parity model, the weighted average of the import and export parity prices is taken in the ratio of 80:20.
• Now the BK Chaturvedi committee seems to be recommending a shift to export parity model. This is expected to reduce fuel prices by about 3% on an average. If this happens, the estimated losses of oil companies would come down to about Rs. 2 lakh crores from the Rs. 2.45 lakh crores for 2008-09.