It's in all our interest really

Hindustan Times
New Delhi, April 17, 2012


RBI cuts repo rate by 50 bps
The Reserve Bank of India (RBI) has finally begun cutting interest rates, with the repo rate, at which the central bank lends overnight money to banks, being lowered from 8.5% to 8% on Tuesday. How soon the equated monthly installments on your home and car loans decline will depend on two factors.


The speed with which the central bank brings its policy rates down and the incentive banks have to follow suit. The economy is, however, not appreciably better placed for faster monetary transmission than the last time the RBI took an easy credit stance.
Governor D Subbarao reckons the economy has slowed down considerably since he embarked on a rate tightening cycle in March 2010: gross domestic product grew by a meagre 6.1% in the three months to December 2011. And inflation, which remained above 9% for nearly two years, has moderated to 7% in March 2012. Specifically, the rate of rise in prices of manufactured goods has almost halved to 4.7% in March from a high of 8.4% in November 2011. This gives Mr Subbarao the elbow room to cut rates further to prop up economic activity without stoking inflationary pressures.


But banks stand between Mr Subbarao and the borrower. Three years ago he had a tough time cajoling them to lower interest rates in line with signals from Mint Road. In April 2009 the repo rate stood at 4.75% , half of what it was in October 2008, after a series of cuts.


Despite this, private banks were charging their prime customers upwards of 15% interest; their state-owned rivals slightly less and that too after some not-so-gentle persuasion from the government. The liquidity the RBI was pumping in then was used by risk-averse banks to lend mainly to their most credit-worthy borrower, the government. The borrowing requirement of the central government then was Rs. 4.1 lakh crore, this year it is Rs. 5.1 lakh crore and budget estimates are usually overshot.


Mr Subbarao has managed to push through a clutch of measures that should make interest rates less sticky on their way down. He has freed up deposit rates and abolished the prime lending rate and foreclosure penalties on home loans. This ought to deter banks from locking existing borrowers into higher interest rates while offering better deals to new customers.

Bank lending rates, tied to deposit rates, no longer have a floor in the tax-free interest rate on savings with post-offices; the government last year allowed them to float. With all these measures in place, the central bank and the finance ministry will be watching closely to see if they are sufficient to make the monetary mechanism more responsive to policy.


Expect interest rates to come down gradually.  The government’s borrowing plan, fed in large measure by subsidies on fuel, is the biggest obstacle to a faster rate reduction. The government could use the slack in demand now to raise fuel prices, Mr Subbarao argues, without fanning economy-wide price hikes. The government must heed his suggestion.

Buffett to Stay at Berkshire Helm Amid Cancer Fight

SERENA NG And COLIN BARR

WSJ :April 17, 2012, 8:13 p.m. ET

Billionaire investor Warren Buffett on Tuesday disclosed that he has prostate cancer and indicated he will keep running his Berkshire Hathaway Inc. BRKB +1.37% conglomerate as he receives treatment in the coming months.


In a letter to shareholders of the Omaha, Neb., company, Mr. Buffett, 81 years old, disclosed he has stage 1 prostate cancer, an early form of the disease that is treatable. He said he was told by his doctors that his condition "is not remotely life-threatening or even debilitating in any meaningful way."




The Berkshire chairman and chief executive said he received the diagnosis last Wednesday following a routine check and underwent other tests since that "showed no incidence of cancer elsewhere in my body." He expects to begin two months of daily radiation treatment in mid-July, which will restrict his travel "but will not otherwise change my daily routine."


The statement indicated that Mr. Buffett, who has run Berkshire for nearly half a century, doesn't expect to step down from his dual roles managing the conglomerate and overseeing the bulk of its investments. He couldn't be reached for comment late Tuesday.


Medical experts said Mr. Buffett's long-term prognosis is likely good, given that his cancer is in an early stage. Hundreds of thousands of Americans are diagnosed with prostate cancer early, and early forms of the disease are treatable. The American Cancer Society says about 242,000 new cases of prostate cancer will be diagnosed in 2012, and predicts about 28,000 deaths.


But the development may raise more questions about closely guarded succession plans for Berkshire's leadership, a concern that has weighed on the company and its stock price over the past few years. The announcement comes just three weeks ahead of the company's annual meeting, an extravaganza dubbed "Woodstock for Capitalists" that in recent years has drawn crowds exceeding 30,000 for a five-hour question-and-answer session with Mr. Buffett and other festivities.


Mr. Buffett said in February that the company's board has identified an individual to succeed him as CEO and two backup candidates. But he hasn't disclosed the identities of any of the three individuals and has said the would-be successor hasn't been told that he is the leading candidate for the job. Mr. Buffett has separately hired two individuals that he says will oversee Berkshire's more-than-$100 billion investment portfolio after he retires or dies.




Mr. Buffett said in Tuesday's statement that he feels "great" and will "let shareholders know immediately should my health situation change. Eventually, of course, it will; but I believe that day is a long way off."


The news came as a surprise to Berkshire shareholders, but some said they aren't particularly worried.


"We're concerned for him personally but the survival rate for this is virtually 100%," said Whitney Tilson, managing partner of T2 Partners LLC, who says he still expects Mr. Buffett to remain at Berkshire's helm for at least five more years. "It doesn't change the odds of how much longer he's going to run Berkshire, though obviously he's irreplaceable."


Berkshire's Class A shares slipped about 2% in after-hours trading on Tuesday to $119,100 apiece, after rising 1.5% before the announcement, which was made at 5 p.m. New York time. Meyer Shields, a Stifel Nicolaus analyst, said there could be "modest weakness" in the shares on Wednesday amid succession-related uncertainty.


He noted, however, that Mr. Buffett's prognosis doesn't elevate the succession concerns significantly, as the treatment is likely to be successful.


Mr. Buffett has long been in good health, though in 2000, he was hospitalized for several days and underwent an hours-long surgery to remove several benign polyps in his colon. They were discovered during a routine physical examination. These days, Mr. Buffett still says he eats anything he wants, but also has a personal trainer visit his home several times a week to guide him through some light exercise.


On Tuesday, he described his energy level as "100%" and said he feels like he is in his "normal, excellent health."


But as Mr. Buffett ages, speculation about his health and longevity has grown, as have concerns about how Berkshire will be run when he eventually has to step down. The company he transformed from a struggling textile maker into a sprawling conglomerate involved in insurance, railroads, utilities and manufacturing remains closely identified with him and followers are skeptical that any one person, or several, can consistently beat the market the way Mr. Buffett has over four decades.


Berkshire shares are trading near their lowest valuation in decades: close to 1.1 times book value, versus its average valuation of about 1.6 times book value over the past two decades.


—Ron Winslow 

டீசல், கேஸ் விலையை உயர்த்த ரிசர்வ் வங்கி வலியுறுத்தல்

 தினமணி: 18 Apr 2012 12:23:29 AM IST

மும்பை, ஏப்.17: டீசல், கேஸ், கெரசின் விலைகளை உயர்த்த வேண்டும் என்று ரிசர்வ் வங்கி செவ்வாய்க்கிழமை வலியுறுத்தியுள்ளது. நிதிப் பளுவை குறைக்க இந்த நடவடிக்கையை அரசு மேற்கொள்ள வேண்டும் என்று ரிசர்வ் வங்கி தெரிவித்துள்ளது.

 "நிதி பற்றாக்குறை, நடப்புக் கணக்கு பற்றாக்குறை ஆகியவற்றைக் கருத்தில் கொண்டு இதை மேற்கொள்ள வேண்டியது அவசியம்' என்று ரிசர்வ் வங்கியின் கவர்னர் சுப்பாராவ் தெரிவித்தார்.

 பெட்ரோல் விலை சந்தை நிலவரத்தைப் பொருத்து நிர்ணயிக்கப்பட்டாலும், டீசல், கேஸ், கெரசின் விலைகளை அரசே தீர்மானிக்கிறது. இவற்றிற்கு அளிக்கப்படும் மானியத்தால் பட்ஜெட் செலவினம் அதிகரித்து வருகிறது. இந்த ஆண்டு ஜனவரி மாதத்தில் 111 அமெரிக்க டாலராக இருந்த கச்சா எண்ணெய் பீப்பாய் ஒன்றின் விலை, ஏப்ரல் மத்தியில் 120 அமெரிக்க டாலராக உயர்ந்துள்ளது. எண்ணெய் பொருள்களுக்கு பட்ஜெட்டில் ஒதுக்கப்பட்டுள்ள மானியத் தொகை நிச்சயம் அதிகரிக்கும் என்றும் ரிசர்வ் வங்கி தெரிவித்துள்ளது.

 அரசு அளித்து வரும் மானியங்கள் நிதிப் பற்றாக்குறையை அதிகரித்து வருகின்றன. கடந்த நிதியாண்டில் நிதிப் பற்றாக்குறை ஜி.டி.பி.யில் 5.9 சதவீதமாக உயர்ந்தது. அது நடப்பு நிதியாண்டில் 5.1 சதவீதமாக தொடரும் என்று தெரிகிறது.

 இந்தியா 80 சதவீத பெட்ரோலியப் பொருள்களை இறக்குமதி மூலமாகவே பெறுகிறது. பட்ஜெட்டில் அளிக்கப்பட்டுவரும் மானிய அளவை இந்த நிதியாண்டில் ஜி.டி.பி.யில் 2 சதவீதமாகவும், வரும் காலங்களில் 1.75 சதவீதமாகவும் குறைக்க அரசு இலக்கு நிர்ணயித்துள்ளது.

 2012-13 நிதியாண்டில் பெட்ரோலியப் பொருள்களுக்கு ரூ.40 ஆயிரம் கோடியை மானியமாக அரசு ஒதுக்கியுள்ளது. இந்தியாவின் நடப்புக் கணக்குப் பற்றாக்குறையும் 2011 ஏப்ரல்-டிசம்பர் காலகட்டத்தில் ஜி.டி.பி.யில் 4 சதவீதமாக உயர்ந்தது. நாட்டிற்குள் வரும் அன்னியச் செலாவணிக்கும், வெளியேறும் அன்னியச் செலாவணிக்கும் உள்ள வித்தியாசமே நடப்புக் கணக்குப் பற்றாக்குறையாகும்.

RBI rate cuts alone can’t revive growth

The New Indian Express

 18 Apr 2012 12:29:40 AM IST

Sending out a strong signal to a floundering Indian economy that has been in strategic drift for well over a year now, the Reserve Bank of India that had increased rates 13 times between March 2010 and October 2011 to fight inflation, cut repo and reverse rates by 50 basis points each. 

The correction is aimed at spurring growth to 9 per cent levels, seen before the global financial crisis that began in 2008, RBI governor D Subbarao said on Tuesday while unveiling the annual credit policy. 

“The reduction in the repo rate is based on an assessment of growth having slowed below its post-crisis trend rate, which, in turn, is contributing to the moderation in core inflation,” the governor said.

A pass-through by the banks, especially to millions of borrowers in the home and even automobile sectors, may be easier said than done as the banks will again hold on to the current rates a bit further, clearly with an eye on the margins.

 Even then, the quantum of solace for the public may not be totally in sync with what the RBI has set out to do as the banks would come out with their own methods of balancing deposits and loans. The immediate fallout of RBI’s decision to cut short-term lending rate to 8 per cent would be a marked disinterest by banks in accepting deposits.

Clearly, it is high time the government shrugged off its inertia and dusted off a few policy initiatives — FDI in retail, aviation and pension funds among those keenly watched by offshore investors

 It also needs to address widening gaps on the current account and trade fronts, leading to a highly skewed fiscal deficit position. With industrial production down to 4.1 per cent in February, the government is fast running out of options.


 Because, inflation though subdued for the nonce, is waiting to cut loose again once the government decides to agree to the shrill cry of oil companies for a steep price hike, both for petrol and diesel. Then, the situation that warranted the present rate cut would have reversed itself, in double quick time.

RBI proposes banks reduce exposure to gold loan cos

Reuters:MUMBAI, April 17 | Tue Apr 17, 2012 6:48am EDT

The Reserve Bank of India (RBI) has asked banks to reduce their exposure to non-banking financial companies (NBFCs), which have given loans mostly against gold, sending shares of such companies sharply lower.

Banks should reduce their regulatory exposure in a single such company to 7.5 percent of their capital fund from the current 10 percent, the RBI said in its monetary policy statement for fiscal 2012/13.

NBFCs, which have gold loans as 50 percent or more of total financial assets, will fall under this category.

The central bank has also proposed banks should have an internal sub-limit on their entire exposure to such gold loan companies.

The measure, latest in a series of step, is to increase surveillance of gold loan companies like Manappuram Finance and Muthoot Finance as well as companies like SKS Microfinance which have forayed into gold finance and check excessive lending against the yellow metal.

On March 21, the RBI had asked all non-banking finance companies that lend against gold collateral should maintain a loan-to-value ratio not exceeding 60 percent for loans granted against gold jewellery.

The rapid pace of business growth and the inherent concentration of business risks of the gold loan companies have been a source of concern for the central bank.

Manappuram Finance shares closed 6.33 percent lower at 31.95 rupees. Muthoot Finance shares ended up 1.8 percent, after falling 5.2 percent intraday.

"It is negative for the gold loan NBFC companies as lending to the these from banks will get reduced. They will now have to borrow additional funds from the market at higher rate," Hiten Gala, senior manager advisory at brokerage Sharekhan said.

Manappuram Finance shares have been the worst hit as the company is possibly facing a liquidity crunch, Gala said.

In March, the company's founder VP Nandakumar sold about 4 percent stake to three large private equity funds, including Baring Private Equity and Sequoia, for about $28.9 million, exchange data showed.

The federal government had doubled the import duty on the yellow metal, and also levied excise on unbranded jewellery to limit the shipments from the world's biggest buyer of bullion, which is said to dent the current account deficit.

"Gold imports have also increased sharply, raising macroeconomic concerns," the RBI said.

It has also formed a working group to analyse the impact of gold imports on financial stability and whether NBFCs extending gold loans have any role in influencing gold prices.

The group is expected to submit it report by end-July 2012. (Reporting by Siddesh Mayenkar & Manoj Dharra; editing by Subhadip Sircar)