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Praising notes ban, RBI’s Gurumurthy says economy would have collapsed

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New Delhi: Ahead of next week’s crucial board meeting of RBI, the central bank’s independent director and RSS ideologue S Gurumurthy made a case for calibration of its massive Rs 9.6 lakh crore reserves, saying no central bank in the world maintains such high levels of surplus.

Gurumurthy, who was appointed to the board of RBI a few months back, said the capital adequacy ratio prescribed in India is 1 per cent higher than the global Basel norms. He also pitched for easing lending norms for small and medium enterprises, which account for 50 per cent of the country’s GDP.

In his first public comments since the spat between the RBI and the Finance Ministry over a range of issues came out in the open, Gurumurthy said the stand-off “is not a happy thing at all”.

 

The RBI’s board meeting is scheduled to take place on Monday where the issues raised by the government, including easing of PCA norms, cutting size of reserves and enhancing credit to MSMEs, are likely to come up for discussion.

Praising the shock demonetisation of old Rs 500 and Rs 1,000 notes in November 2016, he said the Indian economy would have collapsed under the weight of high denomination currency notes which had risen to Rs 4.8 lakh crore in just 18 months and was being funnelled to real estate and gold. On the issue of capital framework for RBI, he said two different studies have put the adequate size of reserve that the central bank must maintain to guard against default risk at 12 per cent and 18.76 per cent. However, the RBI currently has reserve of 27-28 per cent, which may have further gone up due to the recent depreciation in the value of rupee.

“The appreciation in the value of the dollar is the reserve of the Reserve Bank. You bought dollar at 42-45, and it is now 70. Just like when you buy some shares and the share values go up, and you take the appreciation as your reserve, this is the reserve.

“You cannot say, come on it has appreciated so much, give me that money. I don’t think the government is asking for that. As my understanding goes, the government is only asking for a formulation of a policy as to how much reserve the central bank must have. Most central banks don’t have reserves of this kind at all, only RBI has these kinds of reserves,” he said.

Gurumurthy was delivering a lecture on ‘State of the Economy: India and the World’ at the Vivekananda International Foundation (VIF) here.

Stating that the stand-off between the RBI and government “is not a happy thing at all”, he indicated that differences could be a result of considering only the American system as the perfect ecosystem.

“But I think an alternative is necessary and exists also. That is part of an overall correction of the Indian mind,” he said.

On easing of Prompt Corrective Action (PCA) framework, he said there has been certain revisions of norms recently.

“If capital adequacy is the only ground, then much of this problem won’t be there. But there is capital adequacy-plus grounds on which this issue is there. That is the matter of dispute between the government and RBI,” he said.

The PCA framework kicks in when banks breach any of the three key regulatory trigger points — namely capital to risk weighted assets ratio, net non-performing assets (NPA) and return on assets (RoA).

Of the 21 state-owned banks, 11 are under the PCA framework. These are Allahabad Bank, United Bank of India, Corporation Bank, IDBI Bank, UCO Bank, Bank of India, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, Dena Bank and Bank of Maharashtra. With regard to Basel III norms on capital adequacy, he said the BIS prescribes these for only internationally active banks.

“But banks which are not internationally active, need not conform to what (they) say. The universal banks need not conform to what (they) say. We don’t have any commercial banks. We have only universal banks because our banks do term lending. But still the same Basel norms are imposed,” he said. In India, for both internationally active and domestic banks it is 9 per cent, he said.

“We are doing more than what Basel wants and so the banks have less money to lend. These are all the things on which there is no discourse in India,” he noted. There are only four internationally active banks in India, he said, adding all others are domestic lenders. “They need not have 8 per cent capital. They are forced into having 9 per cent capital. Because some people think the IMF feels happy if we have 9 per cent capital,” he said.


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Sensex sheds 298.82 to close at 38,811; Nifty shrinks to 11,650

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Mumbai: The benchmark BSE Sensex erased early gains to end 299 points lower Thursday as investors booked profits after stocks soared to record highs after BJP’s strong showing in the Lok Sabha polls.

Sensex and NSE Nifty went on to record highs even as Lok Sabha election results showed that PM Modi-led NDA leading on over 300 seats. However after the euphoria during the morning session, Sensex shed 298.82 to close at 38,811 and Nifty shrank to 11,650 on the closing bell.

During the day, the Sensex hit the 40,000 mark while the Nifty crossed the 12,000-level for the first time ever. However, the indices succumbed to profit booking towards the fag-end of the session.

 

The 30-share Sensex tumbled 298.82 points, or 0.76 per cent, to close at 38,811.39. Similarly, the broader NSE Nifty settled 80.85 points, or 0.69 per cent, lower at 11,657.05.

IndusInd Bank was the biggest gainer in the Sensex pack, rallying 5.23 per cent, followed by Hero MotoCorp, Coal India, Yes Bank, PowerGrid, ICICI Bank, HCL Tech, L&T, Kotak Bank and Bharti Airtel, rising up to 1.56 per cent. On the other hand, Vedanta, ITC, Tata Motors, HDFC twins, Bajaj Finance, Sun Pharma, Tata Steel, TCS, ONGC and Infosys fell up to 5.53 per cent.

Riding on a massive Modi wave sweeping through most parts of India, the BJP was set to return to power Thursday as it led in 298 seats while the Congress trailed far behind with 52, according to trends released by the Election Commission for all 542 seats that went to polls.

“Markets were initially enthused to see the election results falling in line with the exit polls. However, the run up to the D-day was so sharp that it turned out to be a sell on news phenomenon,” said Devang Mehta, Head – Equity Advisory, Centrum Wealth Management.

Participants would now be keen to know the future course of action for bringing the economy back on track, solution to the liquidity situation, the union budget, onset and progress of monsoon in June and most importantly the earnings trajectory, he added.

According to traders, weak cues from other global markets and a depreciating rupee also weighed on investor sentiment. The rupee depreciated 37 paise to 70.04 against the US dollar in afternoon trade. Globally, bourses in Asia ended in the red.

Indices in Europe were also trading on a negative note in early deals. Brent crude, the global oil benchmark, was trading 1.79 per cent lower at USD 69.72 per barrel.

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Silver up on increased offtake; gold steady

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New Delhi: Silver prices rallied by Rs 200 to Rs 37,400 per kg in the national capital on Thursday, while gold held steady, according to the All India Sarafa Association.

Traders said silver prices rose on pick-up in offtake by industrial units and coin makers at the local spot market. Globally, spot gold was trading marginally higher at USD 1,276 an ounce, while silver was slightly up at USD 14.53 an ounce in New York.

In the national capital, gold of 99.9 per cent and 99.5 per cent purity dropped by Rs 10 each to Rs 32,670 per ten 10 gram and Rs 32,500 per 10 gram. Sovereign gold, however, held steady at Rs 26,500 per eight gram.

 

Silver ready surged Rs 200 to Rs 37,400 per kg, while weekly-based delivery fell by Rs 66 to Rs 36,234 per kg. Silver coins held flat at Rs 79,000 for buying and Rs 80,000 for selling of 100 pieces.

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India PC mkt declines 8.3 per cent to 2.15 mn units in Jan-Mar qarter

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New Delhi: Personal Computer (PC) shipment in India fell by 8.3 per cent in the January-March quarter of 2019 to 2.15 million units, registering a year-on-year decline for the third consecutive quarter, according to research firm International Data Corporation (IDC).

Besides, big commercial deals, market remained weak due to weak consumer demand, high inventory from previous quarters, and supply issues for Intel chips.

Shipments in the consumer segment saw a 26.5 per cent dip in the said quarter compared to the year-ago period. The commercial PC market saw a total shipment of 1.35 million units in the said quarter, a growth of 7.3 per cent over last year.

 

“The announcement of central elections on March 10, 2019 resulted in the model code of conduct coming into immediate effect further resulting in a delay in execution of government projects and impacting the commercial segment,” IDC said in a statement.

However, IDC expects the overall PC market in India to witness a growth in the second quarter. The commercial market is expected to pick up post new government formation in May, while the consumer market is expected to pick up largely driven by back to school campaign by vendors and online sales.

HP maintained its leadership position with an overall market share of 28.1 per cent in the first quarter of 2019, followed by Dell (25.9 per cent), Lenovo (25.2 per cent) and Acer (11.7 per cent).

The notebook PC (laptop) category accounted for 61.4 per cent of the shipment and witnessed a 9.8 per cent year-on-year decline.

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