RBI may have to buy dollar to keep rupee on leash

Just a few months ago, the Reserve Bank of India had to sell record amounts of dollars to prevent the collapse of the rupee as global investors fled the market because of a deteriorating economy and talk of the US Federal Reserve scaling back its stimulus programme, among other reasons.

But the central bank may soon start having to buy the US currency to prevent the rupee from strengthening to a point where it starts hurting the economy. It may also buy from currently copious inflows to create a foreign exchange reserve buffer that would be about 10% lower than what it was in 2008, when the global financial crisis broke out, sparking a market rout. Dollar purchases will also protect exports from getting hit by weakening emerging market currencies, including the Chinese yuan, said traders and economists.

The Indian rupee's gain of nearly 4% since Raghuram Rajan took over as central bank governor in September may be a sign of approval for his policies.

But keeping exports healthy is critical as they have helped in lowering the current account deficit, which had widened to a record last year.

Worryingly, exports contracted in February after a seven-month expansion run, the government said on Tuesday. Meanwhile, expectations of a stable government after the upcoming elections have buoyed markets, which is adding to rupee gains as foreign investors have rushed in, driving stocks to successive records.

With global trade in flux and China possibly set to depreciate its currency to boost slumping exports as domestic growth slows, India's central bank may have few options left.

"RBI should be buying dollars now," said Ananth Narayan, managing director (global markets) at Standard Chartered Bank. "When the vulnerabilities are still there, it may be judicious for RBI to buy dollars."

Some companies would prefer a stronger currency, especially those with overseas debt. It will also lower the cost of imports, which would be detrimental to domestic industry as has happened in the past.

The sharp fall in the currency last year helped revive exports and contain imports as they became expensive. Restrictions on gold imports also helped narrow the current account deficit, the difference between spending overseas and exports, to 1.9% of gross domestic product in the December quarter, from 6.5% a year earlier.

The rupee ended 0.2% lower on Tuesday, near a seven-month high of 60.75 to the dollar. It was the worst-performing major emerging market currency last year, when it fell to a low of 68.84 to the dollar on August 28.

Foreign portfolio investors have pumped nearly $6.5 billion into Indian debt and equity since January. Allowing this to continue boosting the currency without building up reserves may expose India to volatility when the tide turns, for instance if the electoral verdict is indecisive.

Foreign exchange reserves are at $294 billion, up from last year's low of $274.8 billion, which was the week in which Rajan took charge. Reserves hit a peak of $326 billion in May 2008, when the country's overseas debt was at $224.6 billion. Overseas debt is currently at about $400 billion. Apart from portfolio inflows, $34 billion has come in due to the central bank's special subsidised deposit scheme for non-resident Indians. In a way, this too is debt that has to be repaid.

"Reserves as a ratio haven't moved in the past four years," said Siddhartha Sanyal, economist at Barclays, whose short-term rupee target is 59 to the dollar.


Source: Economic Times

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ICICI launches portable POS; patrons at hotels to benefit

In order to do away with inconvenience around entering secret PIN number for card transactions in hotels, a point-of-sale operator backed by the country's largest private sector lender ICICI Bank today said it has launched a portable machine.

ICICI Merchant Services, an alliance between ICICI Bank and electronic commerce and payment services company First Data, plans to replace 25,000 machines located in the hospitality sector enterprises with the portable hand-held machines, it said in a statement.

It can be noted that starting December 1 last year, the Reserve Bank has asked for the secret PIN to be entered for all card payments at merchant establishments.

For the hospitality sector, this is resulting in customers being made to walk to the centrally-located POS machine and enter their PIN number or worse, share it with the hotel staff attending to them.

A customer will be presented the machine at the table in order to authorise a transaction rather than the current practice of going to the cash counter where the point-of-sale (POS) machines are generally kept, the statement said.

"We believe this solution will boost card transactions, as now over 70 per cent of all cards in India require PIN authentication in order to successfully complete a transaction," the company's Executive Director Nitish Asthana said.

ICICI Merchant Services currently has two lakh POS machines in force across the country, the statement said.



Source: Economic Times

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All-woman bank plans to open 55 more branches next fiscal

Bharatiya Mahila Bank (BMB), the first all-woman bank and a new entrant in the sector, has embarked on a mission to open 55 additional branches pan-India by the next financial year, a senior official said.

"We are going to touch a mark of 25 branches by end of this financial year, while for the ensuing FY, the target is to have 55 additional branches in the two-tier and unbanked cities," BMB's Chairperson and Managing Director Usha Ananthasubramanian told reporters here.

She was here to inaugurate the 14th branch of the bank. Prime Minister Manmohan Singh had inaugurated the first branch of the bank in the presence of UPA Chairperson Sonia Gandhi on November 19 in Mumbai.

The bank allows deposits from everyone, but lending will be predominantly for women, the CMD said adding that lending to women is safe as compared to men.

"Women don't default much. Often there is peer group pressure on them," she said, adding that unlike men, women don't divert funds for other projects and this quality makes them safe borrowers.

The bank has already tied up with Tata Motors for vehicle financing. Besides, a deal has also been inked with Institute of Chartered Accountants (ICA) for girl students to study CA.

In yet another initiative, the bank in collaboration with ICA provides loan to women chartered accountants at lower rates to set up their own office, Ananthasubramanian said.

"Almost 40 per cent of CAs are women but they have to practice under men. We help them to get their own identity," she added.

The bank also plans to enhance its association with the insurance sector, while a deal with Institute of Company Secretaries is also lined up, the CMD added.


Source: Economic Times

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Muthoot Fincorp to offer gold loans at lower rate to women

Gold lender Muthoot Fincorp said it will be offering a two percentage point discount to women borrowers for loans under Rs 50,000 for a limited period in view of International Women’s Day.

Women will be able to borrow at 12 per cent for loans up to a tenor of 1 year under Rs 50,000, it said in a statement.

A company spokesperson added that it otherwise charges a rate of 14 per cent for loans under Rs 50,000, which can go up to 22 per cent for loans above Rs 3 lakh.

The current scheme is available only till March 15 across the company’s 3,829 branches, the statement said.

Women will get a loan to value ratio of up to 71 per cent, the company added.

Under the gold loan scheme, a borrower keeps gold as a security for raising money from a financier.

The gold is given back to the customer after repayment or sold if the borrower falters on repayment.


Source: The Hindu Businessline

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