28.10.2009

Finance & Economy

• The beginning of the end of easy money policy
• Reserve Bank governor Duvvuri Subbarao on Tuesday ended the soft monetary policy — aimed at easing the credit crisis that kicked in last year — as he began the exit by withdrawing liquidity boosting measures, becoming the third central banker in the world to do so after Australia and Israel. An increase in lending rates is now imminent next quarter if consumer and asset prices remain high. Benchmark rates were, however, kept unchanged.
• The governor withdrew a special facility making available funds from banks to mutual funds and finance companies, made it more expensive to lend to commercial real estate, forced banks to invest more in government bonds and asked lenders to set aside more funds for bad loans. The special facility was introduced last year to boost liquidity for firms in the financial sector after the credit markets froze.
• RBI maintained the repurchase rate or repo rate — the rate at which the central bank provides funds to banks — at 4.75%; the reverse repo rate — the rate at which it takes funds from banks — at 3.25%, and the cash reserve ratio — the slice of deposits that banks have to mandatorily park with the central bank — at 5%.
• But the central bank surprised the market in its choice of instruments to announce the exit of an easy money policy. The statutory liquidity ratio (SLR), which prescribes the percentage of deposits that banks are required to invest in government debt, has been raised from 24% to 25%, which Mr Subbarao said was a reversal of an exceptional measure. Last year, at the height of the global credit crisis, the central bank had lowered the SLR to ease credit flow to industry.
• The apex bank also raised its forecast of inflation as measured by the wholesale price index to 6.5% by March 2010, from 5% earlier, as food prices continue to rise on short supply due to the worst-ever monsoon rains in more than a quarter of a century.
• The RBI has introduced new financial instruments, which would fill the gaps in hedging needs and make the debt market thicker and more mature. They include floating rate bonds, repos on corporate bonds, credit default swaps, STRIPS, forex futures for currencies other than the dollar and some more.
• It also contributed to the cause of financial inclusion by expanding the eligibility for becoming a banking correspondent and allowing banks to collect service charges.
• Excise duty reductions to be rolled back?
• The finance ministry is reportedly exploring the possibility of a partial year-end rollback of the excise duty cuts doled out earlier in a bid to boost collections from this tax, which have been sharply lower in the first six months of the current fiscal.
• The rate increase looks feasible because of the large unused cenvat credit available with industry. The manufacturing industry can offset the higher excise duty against the available cenvat credit, ensuring that greater excise levy does not cause prices to increase and thereby affect the economic recovery underway.
• The government had halved the cenvat rate from 16% to 8% in stages beginning budget 2008-09 as part of the measures to stimulate demand after the global financial crisis caused hiccups in the Indian economy. Cenvat rate is the median rate of excise duty, levied on nearly 90% of manufactured goods.
• Country's DGH denied extension; new DGH to take over soon
• OIL India director (operations) and former deputy director general in the Directorate General of Hydrocarbon (DGH), SK Srivastava, is likely to replace the controversial chief custodian of country’s oil and gas assets, VK Sibal. The change has been necessitated following the oil ministry’s refusal to extend Mr Sibal’s tenure. The incumbent DG has been in the news for his alleged proximity to a private oil firm and the connection is being probed by the Central Bureau of Investigation (CBI).
• Oil ministry had earlier recommended a two-year extension to Mr Sibal till his superannuation from Oil India in January 2012 after his fiveyear contract as DG was coming to an end on October 31. The recommendation, however, required mandatory clearance by the Central Vigilance Commission (CVC), the top agency to prevent of corruption in the public services. Upon an investigation, CVC found prima facie evidence that Mr Sibal took undue favours from a private oil company and asked CBI to probe it further.
• The government established DGH in 1993 to act as an upstream advisor and technical regulator. Its prime function is to manage country’s hydrocarbon resources.
• Restrictions on loan securitisation
• You might remember what we noted on the subject on 22.10.2009. Compare that with what is reported today below:
• Banks now have to wait for a year before they can splice loans into marketable securities and sell them to prospective investors. Originators of securitised debt will also have to retain a tenth of the total assets securitised, as part of the central bank’s objective to bring greater transparency to the market.
• In securitisation, the originator bank repackages loans in the form of marketable securities. These are in the form of pass through certificates (PTCs) — like bonds — issued by a special purpose vehicle (SPV) holding the loan. An investor in securitised debt is typically the one who aspires for higher returns and has a stomach for higher risks associated with a loan.
• ICICI Bank, Kotak Mahindra Bank, Yes Bank, Citi and Standard Chartered are some of the key banks active in the segment.
• Market estimates place the size of the securitised debt market at close to Rs 40,000 crore in fiscal 2009.

Entertainment

• Jackson's "This is it" opens to big draws.
• Are you a Michael Jackson fan? If so, you should not miss this news report on the subject. We love Jackson as well as Madonna; and are never tired of comparing their long but divergent music careers. We love them both in equal measure for what they are. Both of them are greats in their own ways.

Language lessons

• hornet's nest: Noun
• A highly contentious or hazardous situation
• eg: Jairam Ramesh has stirred the hornet’s nest by his outof-the-box thinking, arguing for a fresh approach to climate change negotiations.