SC bench to decide on insurers' liability to pay claims

A larger bench of the Supreme Court will decide the issue of whether insurance companies can be compelled to pay the claim even if they

are under no liability to pay such amount? A bench comprising Justice Markandey Katju and Justice AK Ganguly said: “We are of the opinion if the insurance company proves that it has no liability to pay compensation to the claimants, the insurance company cannot be compelled to make payment and later on recover it from the owner of the vehicle.” No doubt, there are some decisions of the apex court which have taken the view that even if the insurance company has no liability, yet it must pay and later on recover it from the owner of the vehicle, the court said. The bench said, we have some reservations about the correctness of such decisions of this court (SC). If the insurance company has no liability to pay at all, then, in our opinion, it cannot be compelled by order of the court in exercise of its jurisdiction under Article 142 of the Constitution of India to pay the compensation amount and later on recover it from the owner of the vehicle. The court framed two issues to be decided by a larger bench of the apex court. One, if an insurance company can prove that it does not have any liability to pay any amount in law to the claimants under the Motor Vehicles Act or any other enactment, can the court yet compel it to pay the amount in question giving it liberty to later on recover the same from the owner of the vehicle? Two, can such a direction be given under Article 142 of the Constitution (discretionary power of the apex court) and what is the scope of Article 142? Does Article 142 permit the court to create a liability where there is none?. The court passed the order on the plea of National Insurance Co. It said there was no valid insurance coverage on the date of the accident i.e. 30th November, 2003. The cheque towards premium for renewal of the policy was issued on November 29, 2003, but it was dishonoured. Hence, the contention of the insurance company was that it has no liability to pay any compensation amount to the claimants since there was no insurance coverage on the date of the accident. Despite this, the AP high court had directed the insurance company to pay the compensation amount to the claimants with liberty to recover the same from the owner of the vehicle.

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Hedging loans with interest rate futures

Interest rate futures (IRFs), which made a comeback this Monday after six years, has opened up a lot of interesting options for an individual.
Especially, for high networth individuals (HNIs), IRFs could be a good hedge against loans or existing fixed deposits. Here’s how it will work:
Say, a person has taken a home loan of Rs 40 lakh at 8 per cent floating rate for 15 years. His equated monthly instalment (EMI) would be Rs 38,226.

FUTURE PERFECT
Home loan = Rs 40 lakh
Rate of interest = 8 per cent
Tenure = 15 years (180 months)
EMI = Rs 38,226
After one year
Rate of interest = 10 per cent
Principal outstanding = Rs 39,77,919
Tenure = 14 (168 months)
New EMI = Rs 44,083
(increase = Rs 5,857)
Hedging through IRFs
Twenty lots of IRFs = Rs 40 lakh
Margin money (5 per cent) = Rs 2 lakh
Sold after one year (at 1-1.5 per cent higher yield) = Rs 2.4 lakh - Rs 3.8 lakh (considering 1 per cent rise yield leads to returns of 6 per cent due to fall in price)
Prepayment of loan
(entire Rs 2.4 lakh)
New Balance = Rs 37,37,919
New EMI = Rs 41, 424
Saving = Rs 2,659 per month

If the interest rate goes up to 10 per cent next year, the outstanding principal will be Rs 39,77,919 and the fresh EMI will come to Rs 44,083 - a rise of Rs 5,857 per month.
Supposing the person was expecting the rate to go up, as is the case now where there are expectations that any rise in inflation would result in higher rates, he can sell IRFs (go short) in the futures market for the same time frame (one year) now to hedge against this risk.
The instrument will be a 10-year notional coupon bond bearing the Government of India security. Since one contract size of IRF is Rs 2 lakh, he needs to deal in 20 lots.
After one year, when home loan rates rise, benchmark yields of the notional coupon would also have increased (earlier in fact, to indicate a rising interest rate regime). Consequently, the yields of IRFs would also rise.
If one considers that yields of IRFs will rise by at least 1 per cent to 1.5 per cent to trigger a 2 per cent rise in home loan rates, the seller of IRFs is going to earn around Rs 2.4 lakh to Rs 3.8 lakh (assuming that 1 per cent rise in interest rate leads to a return of 6 per cent due to fall in prices).
If he partly pre-pays his loan using the profit, his EMI would come down by Rs 2,659. If the interest rate does not go up, he will not make any money on IRFs, but his EMIs will stay constant. On the other hand, if the interest rate goes down, he stands to lose money on IRFs, but his EMI will also come down.
However, while it is possible to hedge your loan against a rise or fall in interest rates, the correlation between IRFs and mortgage rates is not absolute.
Importantly, investors will need margin money for buying the contract and pay for transaction costs.
While the National Stock Exchange is not charging anything at present, the financial institution could charge around Re 0.02 to Re 0.03 per contract.

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DICGC settles claims worth Rs 195 cr from co-op banks

The Deposit Insurance andCredit Guarantee Corporation (DICGC) has settled depositor claims aggregating Rs 195 crore from 28 liquidated co-operative banks, mainly from Karnataka and Maharashtra, in FY2009. This is against Rs 155 crore from 22 co-operative banks in FY2008.
The Corporation’s settlement figures highlight the fact that the number of co-operative banks whose licence has been cancelled by the banking regulator is steadily increasing. The regulator, in recent times, has come down heavily on some of these banks for mismanagement of operations, connected lending, failure to meet prudential norms and so on.
In the current financial year, so far, the Corporation has settled depositor claims aggregating Rs 68 crore from eight liquidated co-operative banks — four each from Maharashtra and Gujarat.
In FY2009, the single biggest settlement effected by DICGC was from the District Co-operative Bank Ltd, Gonda, Uttar Pradesh, for Rs 45.41 crore. Some of the other big settlements effected include Shree Balasaheb Satbhai Merchant Co-operative Bank Ltd, Copergaon, Maharashtra (Rs 22.93 crore) and the Maratha Co-operative Bank Ltd, Hubli, Karnataka (Rs 17.74 crore), and Parivartan Co-operative Bank Ltd, Mumbai (Rs 16.71 crore).
When a bank’s licence is cancelled by the Reserve Bank of India, the liquidator, who is appointed by the Registrar of Co-operative Societies, prepares a list of depositors holding deposits up to Rs 1 lakh and submits the same to the DICGC for settlement of claims.
All registered insured banks (commercial banks, including branches of foreign banks in India, regional rural banks, local area banks, and co-operative banks) are required to pay to the DICGC deposit insurance premium at the rate of 10 paise a year for every deposit of Rs 100 at half-yearly intervals. Governed by the DICGC Act, 1961, the corporation insures bank deposits such as savings, fixed, current, and recurring up to Rs 1 lakh a depositor/bank. The premium paid by the insured banks to DICGC is required to be absorbed by the banks themselves; for depositors, the benefit of this service is free of cost.
“Since DICGC is charging premium on all deposits, irrespective of whether the deposit is for Rs 100 or Rs 1 crore, there is no reason why deposit insurance coverage should be limited to a deposit holding of Rs 1 lakh. Depending on the gradation of a bank, the Corporation could consider introducing variable premium so that deposit insurance coverage could be upped substantially,” said Dr Vinayak Tarale, Secretary, Maharashtra State Co-operative Banks’ Association.

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Bankers wary of collateral-free education loan scheme

When a bank extends an education loan it takes a call on the course and the prospect of the student-borrower getting a job on completion of the course.—
Collateral-free education loans given by banks under the ‘model education loan scheme for students to pursue higher studies’ has bankers a bit worried.
Their concern stems from two counts. While on the one hand they do not have any tangible security to fall back on should an education loan of up to Rs 4 lakh turn sour, on the other, in the current scenario of a slowing economy whereby either jobs are hard to come by or even if a student lands one, he/she is not in a position to service the loan due to low pay. Hence, they are cautious of potential irregularities in the servicing of these loans.
Underscoring the bankers’ predicament vis-À-vis collateral-free education loans, a public sector bank official pointed to the case of a daily wage earner’s daughter who took an education loan for enrolling into a four-year B.Sc (Nursing) degree in a private college in Kerala at an exorbitant fee of around Rs 80,000 per annum.
On completion of the degree, the student-borrower got a job in a private hospital in Chennai at a monthly salary of Rs 2,000, which is barely enough to eke out a living, let alone pay the bank loan. Given their economic condition, the bank could not initiate recovery proceedings against the parents, who were the co-borrowers.
Under the model education loan scheme, which is in operation across all banks, according to a directive issued by the Reserve Bank of India in 2001, banks can neither charge margin nor take security when a student-borrower takes education loan of up to Rs 4 lakh. The bank, however, can rope in the parents of students as co-borrowers.
Privately-run professional colleges are making the most of the collateral-free education loan scheme. “Knowing very well that banks are giving collateral-free education loans to students, private colleges have hiked the fees of professional courses. These institutions are making profits at the students’ expense,” said a bank official.
High interest
As banks do not take any collateral for education loans up to Rs 4 lakh, they charge higher interest on such loans. For example, State Bank of India charges 11.50 per cent interest on education loans up to Rs 4 lakh.
For education loans above Rs 4 lakh and up to Rs 7.5 lakh and over Rs 7.5 lakh, the bank charges 11.25 per cent and 11 per cent interest respectively.
“When a bank extends an education loan it is taking a call on the course and the prospect of the student-borrower getting a job on completion of the course. In this regard, our comfort will increase if the model education loan scheme could be suitably modified, whereby banks are allowed to create a lien on security if the borrower is in a position to offer one. Then, we could consider bringing down interest rates on education loans up to Rs 4 lakh,” said a senior official with a public sector bank.
In the case of education loans above Rs 4 lakh, banks charge a margin of 5 per cent for studies in India and 15 per cent for studies overseas.
Collateral security
For education loans above Rs 4 lakh and up to Rs 7.5 lakh, besides roping in parents as co-borrowers, the banks also seek collateral security in the form of a third party guarantee. For loans over Rs 7.5 lakh, banks seek co-obligation of parents together with tangible collateral security of suitable value along with the assignment of future income of the student for payment of instalments.
Outstanding loan portfolio
According to various estimates, the outstanding education loan portfolio of all banks put together is in the region of Rs 30,000 crore as on March 31, 2009.
“Due to the economic slowdown and the consequent slump in the job market, the bank has seen some cases of students not reporting to the bank at the end of the one-year moratorium period after the completion of their course, following which they are supposed to start repayment. We don’t think it will become a serious NPA situation. As of now it is just overdue,” said a senior Andhra Bank official.

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Indian banks pass stress test

MTM risks to the Indian banking sector are limited and manageable.
The Indian banking system is resilient to the shocks that may arise due to higher non-performing assets (NPAs) and the global economic crisis, the Reserve Bank of India’s (RBI’s) stress test has shown.
RBI’s Annual Report-2008-09 said the test was done to assess the capital adequacy of the banks to sustain losses from deteriorating asset quality, primarily due to falling external demand in the wake of the global recession a subsequent slowing of domestic private demand.
A similar test was done to assess the risks associated with the mark-to-market (MTM) losses on the banks’ overseas exposure. MTM means stating losses based on the current market value of the currency. The assessment, done in 2008, suggested that the MTM risks to the Indian banking sector appeared limited and manageable.
The exercise tested the banks’ exposure to seven sectors whose prospects have dampened due to the slowdown in external demand.
The sectors were chemicals/dyes/paints, leather and leather products, gems and jewellery, construction , automobiles, iron and steel, and textiles. These account for 15.4 per cent of total advances and 12.2 per cent of gross NPAs of Indian banks. The test assumed 300 per cent and 400 per cent simultaneous rise in NPAs in these sectors and adjusted the additional provisioning requirements from existing capital and risk-weighted assets. Barring two banks, which accounted for 3 per cent of the total assets of the banking system, others were found to have the strength to withstand such a risk.
In September 2007, following the financial crisis in the US, RBI started a monthly reporting system to capture the banks’ overseas exposure to off-balance sheet items (primarily credit derivatives and investments such as asset-backed commercial papers and mortgage-backed securities). An analysis of such information so far has revealed that the banks’ exposure to such instruments has gradually come down from June 2008. The MTM losses, however, gradually increased up to March 2009, reflecting the impact of the sustained fall in value of the assets

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Chit funds can't take public deposits, says RBI

The Reserve Bank of India (RBI) today prohibited chit funds from accepting deposits, a move that could make banks the sole public deposit-taking institutions in the country.
The apex bank said these funds could accept deposits only from their shareholders. Chit funds are dually regulated by state government and the RBI. They are registered with the registrar of chit funds under state governments and are regulated by RBI if they accept public deposits.
RBI regulates them through the Miscellaneous Non-Banking Companies (Reserve Bank) Directions Act. Now, the Act has been amended to ban them from accepting public deposits.

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Free ATM withdrawals face caps from Oct 15

From October 15, customers will not be able to enjoy limitless use of third-party ATMs free of charge.
The Indian Banks’ Association (IBA) today decided to limit the number of free third-party ATM transactions to five per month. In addition, the maximum amount that a customer can withdraw from another bank’s ATM has been capped at Rs 10,000 per transaction. Banks have also been allowed to charge for withdrawals from current accounts at third-party ATMs.
The decision to bring the rule into force from October 15 was taken at a meeting of the IBA in Mumbai today. IBA Chairman M V Nair confirmed the date on which the rule would come into effect. Customers will have to be intimated at least a month before the rule is implemented.
Since April 1, customers have been allowed use of other banks’ ATMs free of charge, in line with a Reserve Bank of India (RBI) directive. However, faced with a surge in the number of transactions and a rise in interchange expenses, banks urged RBI to impose caps on use of third-party ATMs. Every time a customer uses another bank’s ATM, his bank has to pay an interchange fee of Rs 20 to the other bank. Before April 1 this year, this charge was borne by the user.
However, banks will have to implement various technical changes to their ATM networks before the rule can be implemented. Bankers said they would need at least two-three months to prepare for the modifications.
“Banks will have to make modifications in their ATM operations so that every time a user exceeds his quota of five transactions, he gets an alert. For subsequent transactions, the interchange fee will be debited from his account. Banks are not yet ready for these modifications,” said a senior executive of a bank.

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RBI group suggests survey on consumer confidence

Data pertaining to areas such as consumer confidence, business outlook for services and employment may soon be available. The Reserve Bank of India’s Working Group on Surveys has recommended these as some of the topics on which the RBI should bring out surveys.
Explaining the need for a consumer confidence survey, the group, in its report, said that changes in household confidence, personal financial situation, savings and investment intention have an impact on real activities and are, therefore, of particular relevance for policy purpose.
Similarly, a regular survey of the credit market conditions would help the RBI analyse trends and developments in credit growth. Such a survey can cover the large lenders from among the commercial banks, the report, said.
Currently, the quarterly Industrial Outlook Survey covers only the manufacturing. The group has suggested that a business outlook survey for the services sector should be conducted, initially with a focus on trading, as it would provide useful information on the demand for manufactured goods and also the overall employment situation as trading is considered to significantly contribute to employment.
In India, there is a major data gap with regard to employment.
The group has recommended that to get a perception of trends in employment opportunities, the RBI should consider conducting quick employment surveys of fresh graduates from technical institutions.
It also recommended the speeding up of the compilation of the Housing Start Index as it is an important lead indicator of economic activity. While the asset price monitoring system will present the price data on housing, the Housing Start Index will provide data on the quantity of housing, the report said.

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MAT changes will hit NBFCs

The Direct Taxes Code (DTC) is slowly being put to deeper scrutiny. As is always the case, some of the changes may be ushered in with good intention, but inept drafting leaves the door open for needless litigation.
The newly crafted Minimum Alternate Tax (MAT) is a case in point. Ever since Rajiv Gandhi unleashed the book profits tax on India Inc. in 1987, it has generated controversies galore and kept all the courts busy interpreting the intention and scope of the provision.
At present, MAT is applicable to corporates at 15 per cent on published profits. The nominal tax rate for the corporate sector is 33.99 per cent and the effective rate after all deductions/concessions stands at around 22.22 per cent.
Mat computation
MAT, despite the controversy surrounding its existence, has lived by the year for now 22 years and promises to open a new chapter from April 1, 2011.
The mechanics, as per the DTC, is simple. MAT will now be 2 per cent of the value of gross assets as against 15 per cent on profits. For this purpose the value of gross assets would be computed as shown in the Table.
It may be noted that even business assets such as sundry debtors, loans and advances will now form part of the computation of gross assets for the purpose of the levy.
Further, while in the vertical form of the balance sheet the current assets are disclosed net of current liabilities, the proposed MAT computation mechanism does not envisage a reduction of current liabilities from current assets. This also leads to an anomalous situation where a company has to pay MAT on the amount of deferred tax asset, if it appears in the balance sheet of a company. The rate of MAT is proposed to be 0.25 per cent in the case of banking companies and 2 per cent in the case of all other companies, including foreign companies.
This is clearly a hardship for Non-Banking Financial Companies (NBFCs) where 70-75 per cent of the assets in the balance-sheet constitute loans and advances, stock on hire and business receivables. There does not appear to be any justification in levying 2 per cent MAT on business assets, which in any case yield income on monthly basis liable to corporate tax at 33.99 per cent (proposed to be reduced to 25 per cent by the DTC). In the case of several large NBFCs, 2 per cent MAT on gross assets would be far greater than 25 per cent on taxable income.
To make matters worse, MAT will now represent a final tax and will not be allowed to be carried forward for claiming tax credit in subsequent years. Not only this, certain companies, will receive an additional blow — for example, those in gestation period; having negative net worth because of huge accumulated losses; having book losses in the current year; having low asset-turnover ratio low net profit ratio; and those earning mainly exempt income.
Change in concept
The justification for re-jigging MAT is that several countries have adopted a tax based on a percentage of assets. The concept of MAT when it first originated in 1987 was completely different from what is proposed in the DTC.
The economic rationale of “assets-based tax” is that it serves as an incentive for efficiency. If that be so then the normal tax itself should serve the purpose.
Any sort of tax that departs from the mainstream route of linkage with income/profits is bound to be litigious. Added to that is the discrimination between banking companies and other companies on the rate of tax. Some serious rethinking is required on the proposed MAT in the DTC.

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RBI surplus jumps 66.6 per cent

The Reserve Bank of India’s (RBI’s) transferable surplus to the Government of India for 2008-09 jumped 66.6 per cent to Rs 25,009 crore from Rs 15,011 crore in the previous year.
According to the RBI Annual Report, the surplus has come primarily due to increased earnings from domestic investments.
The income from domestic sources in 2008-09 at Rs 9,935.77 crore was higher compared with the last year’s level of Rs 5,867.52 crore, primarily on account of an increase in ‘Interest on Domestic Securities and LAF operations,’ which increased from Rs 4,533.87 crore in 2007-08 to Rs 8,683.11 crore in 2008-09 and ‘Interest on Loans and Advances,’ which increased from Rs 325.60 crore in 2007-08 to Rs 1,254.80 crore in 2008-09. The investment in Government of India securities increased by Rs 1,26,086.86 crore, from Rs 72,540.33 crore as on June 30, 2008, to Rs 1,98,627.19 crore as on June 30, 2009, on account of purchase of special securities from the oil marketing companies (ie oil bonds) under the special market operations and increase in the open market operations.
The surplus thus included Rs 1,436.00 crore towards the interest differential on special securities converted into marketable securities for compensating the government for the difference in interest expenditure, which the government had to bear consequent on conversion of such special securities.
The report further stated that unlike the significant expansion in balance sheets of the central banks of several advanced economies that resulted from their policy responses to the crisis, the behaviour of the Reserve Bank’s balance sheet was distinctly different. This is because specific measures, such as reduction in CRR and unwinding of the government’s MSS balances implied corresponding contraction in the central bank’s liabilities, even as both measures were the key channels for injecting large liquidity into the financial system. Thus, through contraction in the balance sheet size, the Reserve Bank could expand the availability of liquidity in the system. On the asset side of the balance sheet too, the contraction was driven by a decline in foreign assets.
During the year, gross income and expenditure of the Reserve Bank were at Rs 60,731.98 crore and Rs 8,217.88 crore, respectively, after meeting the allocation needs for both contingency reserve (CR) and asset development reserve (ADR).
Earnings from foreign and domestic sources were at Rs 50,796.21 crore and Rs 9,935.77 crore, respectively.
The Reserve Bank’s earnings from the deployment of foreign currency assets and gold decreased by Rs 1,087.06 crore (down 2.10 per cent), from Rs 51,883.27 crore in 2007-08 to Rs 50,796.21 crore in 2008-09. This was mainly on account of the fall in interest rates in the international markets. Before accounting for mark-to-market depreciation on securities, the rate of earnings on foreign currency assets and gold was 4.24 per cent in 2008-09 as against 5.09 per cent in 2007-08. The rate of earnings on foreign currency assets and gold, after accounting for depreciation, decreased from 4.82 per cent in 2007-08 to 4.16 per cent in 2008-09.
The foreign currency assets comprise foreign securities held in the issue department, balances held abroad and investments in foreign securities held in the banking department. These assets declined by Rs 81,010.25 crore, from Rs 12,98,552.05 crore as on June 30, 2008, to Rs 12,17,541.80 crore as on June 30, 2009. The decrease in the level of foreign currency assets was mainly on account of net sales of US dollars in the domestic foreign exchange market.

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Sharp rise in State Govts’ borrowing costs

The State Governments’ borrowing costs have seen a sharp escalation despite the liquidity overhang in the financial markets.
The sharp increase in costs was evident from the last auctions for the State development loans held on August 25. The loans were placed at an average yield of 8.22 per cent or a little over 100 basis points over the sovereign ten-year yield bonds. State development loans are normally placed for tenures of 10 years. The spreads have progressively increased since the beginning of this financial year. At the April auctions, the spreads were barely 75 basis points.
Increase in demand
The Chief Economist of rating agency Credit Analysis & Research Ltd, Dr Soumendra K. Dash, said, “The hardening is partly on account of an increase in the State Governments’ liquidity demands this year.” The liquidity demand, in turn, has pushed the State Governments to increase the frequency of their market entry, he added. States have raised close to Rs 4,900 crore through SDLs since the beginning of this financial year.
Traders said that the firming of yields was also on account of market aversion to long dated securities, partly on account of the high incremental investment deposit ratios (IDR) of the banks. Incremental IDR this year so far is about 87 per cent. The nominal ratio is about 33 per cent, well over the prescribed Statutory Liquidity Ratio of 24 per cent.
Short dated securities
Besides, banks which are the largest investors in Government securities have shifted their preference to short dated securities largely on account of the rising liquidity concerns in the markets. The liquidity concerns stemmed from fears that the Government was likely to push for an increase in farm credit in view of the severe drought that has hit large parts of the country.
In addition, bank officials said that the preference for shorter dated securities were also on account of depreciation concerns. Almost all banks have at least 25 per cent of their demand and time liabilities in the Held to Maturity (HTM) category. Consequently, all the incremental holdings are in the marked to market category – Available for sale or in the Held for Trading category.
Bank officials said that most of them picked up the SDLs under the Held for Trading category, with the idea of selling the same to the Life Insurance Corporation of India and other life insurers. Under the existing regulations, banks are permitted to hold securities in the HFT portfolios only up to a maximum of 90 days.
Switch operations
The officials also said that the increase in the yields, were therefore partly on account of the Life Insurance Corporation’s purchases from the banks, through switch operations. Switch operations involve exchange of securities. LIC and other large life insurance companies constantly switch their respective short dated securities for long dated ones. This was in view of the longer tenure liabilities that LIC has in its policy holders’ funds. However, in the switch operations, LIC tended to drive hard bargains, pricing its purchases at high yields and at the same selling its shorter dated securities at lower yields.

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RBI to ensure regular supply of fresh bank notes

Besides examining options to enhance the life of bank notes, the Reserve Bank of India has initiated a multi pronged approach involving regular supply of fresh bank notes, speedier disposal of soiled bank notes and extended mechanisation of cash processing activity to ensure that good quality bank notes are in circulation in the system.
The Bank has in its Annual Report stated that during 2008-09, the value of bank notes increased by 17.1 per cent and by 10.7 per cent in volume terms.
The total supply of bank notes by the Bharatiya Reserve Bank Note Mudran (P) Ltd during 2008-09 (July-June) was 8,501 million pieces as compared with 8,488 million pieces during 2007-08.
The Government-owned Security Printing and Minting Corporation of India supplied 5,160 million pieces of notes in 2008-09 compared with 5,442 million pieces in 2007-08.
“The challenges to managing currency have increased over time given the expansion of the economy and the growing needs for bank notes, the task of currency management has become increasingly complex,” the report notes. The report also took note of the decline in the share of currency in broad money in 2008-09 from 39.7 per cent as at end-March 1971 to 16 per cent in 2001 and gradually thereafter to 14 per cent as at March 2009, reflecting financial deepening, increased use of credit and debit cards and liquid financial markets.
Notwithstanding the decline in the share of currency in broad money, detection of counterfeit bank notes was observed to be on the rise. A total of 3,98,111 counterfeit bank notes were detected at the Reserve Bank’s offices and bank branches during 2008-09 compared with 1,95,811 in the previous year.

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Forex reserves rise by $932 million

After declining for two consecutive weeks, the country’s foreign exchange reserves increased by $932 million to touch $271.957 billion for the week ended August 21, according to the Reserve Bank of India’s Weekly Statistical Supplement.
In the earlier week, foreign exchange reserves fell by $214 million to $271.025 billion.
The increase in reserves was on account of currency revaluation, as the dollar appreciated against major currencies during the week, said a dealer with a public sector bank.
The foreign currency assets increased by $928 million to touch $260.938 billion. Foreign currency assets expressed in US dollar terms include the effect of appreciation/depreciation of non-US currencies (such as Euro, Sterling, Yen) held in reserves.
Gold was unchanged at $9.671 billion. The reserve position in the IMF increased by $4 million to touch $1.348 billion.
Next week, the rupee will track the movement of the equity market and could see resistance at 49.50, said a forex dealer.

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Rupee gains tracking equities

The rupee gained on Friday against the dollar tracking the surprise gains made by the domestic equity markets, said forex dealers. The rupee opened higher at 48.83 and closed at 48.65, which was also the day’s high. On Thursday, the rupee had closed at 48.91/92 and had also crossed 49 briefly. There was regular dollar inflow during the day as foreign banks were seen selling dollars on behalf of their foreign institutional investor clients, said a forex dealer with a public sector bank. FIIs were net buyers in the equity markets. “In the whole month, the rupee weakened only due to month-end demand. The rupee is now tracking the equity markets which are stronger compared with other Asian markets,” the dealer said. In the overseas market, other currencies like the euro and pound also rallied against the dollar as the UK GDP data was positive. The data showed that the contraction in GDP has come down. The rupee’s movement will depend on the equities and it may see resistance at levels of 49.5 next week, the dealer added.

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