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ECONOMY

DAMODARAN PANELS SUGGESTIONS

The report on Customer Service in Banks by a committee chaired by M. Damodaran, former Chairman of the Securities and Exchange Board of India (SEBI) was released on 3 July 2011. The Reserve Bank of India panel recommended an increased deposit insurance cover of Rs.5 lakh so as to encourage individuals to keep all their deposits in banks. The Damodaran panel mentioned that in case of sick banks, a possibility to enable customers to immediately avail themselves of a part of their insured deposits before the final fate of sick banks is decided should be explored. The recommendations were made in 3 broad categories: Home Loans: The panel recommended that banks should not impose exorbitant penal rates towards foreclosure of home loans. A policy should be devised to ensure that customers are not denied of opportunity to enhance their economic welfare by making choices such as switching to other banks/financial entities to enjoy the benefits conferred by market competition. Measures to stop practices of discriminating between new and old customers with identical risk profiles on the basis of interest rate offers were to be initiated. Senior Citizens: There should be prioritised service to senior citizens, physically handicapped persons by effective crowd/ people management available at all branches. The panel suggested introduction of provision of the SMS 22

alerts service about balance in the account at periodic intervals and about due dates for submission of important documents. Automatic updation of the customers to the senior citizen category based on the date of birth would be introduced. Pensioner may be allowed to submit the annual life certificate at any of the (linked) branches and not necessarily at the home branch. Rural Areas: According to the panel banks should ensure proper currency exchange facilities and also the quality of notes in circulation in rural areas. Branches should be made functioning at a time convenient to the customers (agricultural labourers, workers and artisans).

INDUSTRIAL OUTLOOK SURVEY

The Reserve Bank of India launched its Industrial Outlook Survey for the July-September 2011 period. The Industrial Outlook Survey provides for an insight into the perception of non-financial public and private limited companies that are engaged in manufacturing activities about their performance and future prospects. The responsibility for conducting the research on behalf of the central bank was bestowed on Centre for Research Planning and Action (CERPA). The CERPA is to get in touch with several manufacturing companies during the quarter JulySeptember for seeking their valuable feedback so that it can be included in the survey. The survey is to cover non-financial private and public limited companies with a good size/industry representation. Those

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manufacturing companies which are not approached by CERPA can also participate in the survey by downloading the survey schedule from RBIs official website.

IT COMPANIES TO GROW GLOBALLY AT 16-18%

The National Association of Software and Service Companies (NASSCOM estimated that IT companies would continue to grow globally at 16-18 per cent in 2011-12 despite the economic crisis in the U.S. and European markets.Nasscom has been helping Indian IT industry to find newer markets for their products and no to remain over-dependant on the U.S. and the European markets. The U.S. and European nations account for over 85 per cent of the revenues of the over $70 billion Indian IT sector.Nasscom had in the beginning of 2011 presented a conservative outlook of 16-18 per cent growth in IT exports in 2011-12 in the wake of the slow economic recovery in the U.S. and uncertainty in the European region. Nasscom estimated the growth in software and services export to be 16-18 per cent and the sector is slated to bring in revenues of $68-70 billion.

WHAT IS CERPA ?
CERPA was established in 1972 and conducts social science research, provides consultancy on developmental issues, helps planners and policymakers and provides charitable services to the disadvantaged and poor sections of the country.

BY 2015 CLOUD MARKET IN INDIA WILL BE $ 4.5 BILLION

According to a study Private Cloud Landscape in India released by EMC Corporation and Zinnov Management Consulting, a management consulting firm, total cloud market in India will reach a market value of $ 4.5 billion by 2015. The cloud market currently stands at $ 400 million. According to the study private cloud adoption will dominate and account for $ 3.5 billion in revenues, growing at over 60%. The study estimated that private cloud deployments could result in potential savings of up to 50% on the IT investments on average, when compared with a legacy IT model, with cost optimization in areas such as telecom and networking, facilities and fabric, hardware, software, internal labour and external IT services. The study based on a comprehensive survey of over 100 CIOs and IT decision makers in India across industry verticals pointed out that there is an increased preference of cloud adoption over the next five years in India. In cloud computing, a company can store applications and information in its data centers, rather than on the local servers. The information stored and processed on computers in the data centers, can be tapped remotely through a personal computer, cellphone or other device. Cloud computing is expected to reshape the Indian IT market by generating new opportunities for IT vendors and driving changes in traditional IT offerings.Private cloud market is likely to create 1 lakh jobs by 2015 from 10000 today thereby providing an opportunity for students and the workforce.

INDIAN BANKING INDUSTRY TO BE 3RD LARGEST IN THE WORLD BY 2025

A study titled Being five star in productivity:road map for excellence in Indian banking was released FICCI-IBA-BCG, the eve of IBA-FICCI annual banking conference. The theme for the banking conference was decided to be Productivity Excellence.Indias gross domestic product (GDP) growth will make the Indian banking industry third largest in the world by 2025, According to the study. The report chalked out an action agenda for banks, based on insights from an extensive productivity benchmarking exercise conducted across 40 banks. The report highlighted that banks have to strive for excellence on five dimensions: branch sales and service, new channels, lean operations, organisation design and bad debt management. The report stated that branches of banks can generate higher levels of revenue for the banks. Indian banks deploy 62 per cent of staff in customer facing roles as against the benchmark of 82 per cent observed by BCG globally.Indian banks, the report mentioned were to 23

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be doing well overall with industry cost-income ratio below 50 per cent. However, there remained plenty of scope for betterment. On an average, Indian banks have about 20 per cent of staff deployed in back-office processing (for some banks, as high as 40 per cent) as against a global best of 10 per cent observed by BCG. Process re-engineering and operating model change if employed could help reduce costs, improve service, and contain operating risks.Public sector banks were found to be under-investing in technology with spends at about 25 per cent of global benchmarks. The banking industry was holding low headcount in HR and finance roles.

DIRECTORATE GENERAL OF HYDROCARBON WILL BE MORE TRANSPARENT

The oil ministry accepted an Ashok Chawla Committees recommendation to make functioning of the Directorate General of Hydrocarbon (DGH) more transparent to prevent corruption charges. The ministry however firmly rejected the panels suggestion to transfer the governments regulatory powers to an independent body. The ministry did not approve of the panels demand to carve out DGHs regulatory functions into an independent regulator. The ministry also decided to accept the panels recommendation to adopt disclosure norms related to investment audits and post-bid monitoring in tune with the best practices existing elsewhere in the world. The regulatory and contract management roles of the DGH are under scrutiny amid allegations that it did not safeguard the governments interests while dealing with private energy firms - such as Cairn India, Reliance Industries, and BG. The Comptroller & Auditor General had criticised the DGHs role in its draft report and the CBI registered a case against the former head of DGH, VK Sibal and six others officials of the directorate.

(RL) (Base: 1986-87=100) for July 2011 increased by 6 and 7 points respectively Agricultural Labourers and Rural Labourers to stand at 604 (Six hundred and four) points for both the series. In case of Agricultural Labourers, it recorded an increase between 2 to 15 points in 19 States and a decrease of 14 points in 1 State. Haryana with 669 points topped the index table whereas Himachal Pradesh with the index level of 492 points stood at the bottom. In case of Rural Labourers, it recorded an increase between 2 to 15 points in 19 States and a decrease of 11 points in 1 State. Haryana with 663 points topped the index table whereas Himachal Pradesh with the index level of 515 points stood at the bottom. The Consumer Price Index (CPI) Numbers for Agricultural and Rural Labourers in respect of Haryana State registered the maximum increase of 15 points each mainly due to increase in the prices of rice, wheat atta, gram dal, goat meat, milk, onion, vegetables & fruits and bidi. On the other hand, the Consumer Price Index Numbers for Agricultural Labourers and Rural Labourers in respect of Tamil Nadu State recorded a decline of 14 and 11 points respectively mainly due to decrease in the prices of rice, jowar, fish fresh and pan leaf. Point to point rate of inflation based on the CPI-AL and CPI-RL decreased from 9.32% and 9.14% respectively in June 2011 to 9.03% in July 2011 for both the series. Inflation based on food index of CPI-AL and CPI RL stood 6.39% and 6.38% respectively in July 2011.

FOOD INFLATION FALLS TO 9.03 %

According to the WPI (wholesale price index) data released, food inflation eased to 9.03 per cent for the week ended 6 August 2011 from 9.90 per cent in the previous week even as prices of all edibles, barring pulses, continued to rise. The marginal easing could also be attributed to a week-on-week moderation in inflation even as prices continued to move up. For instance, the rate of price rise during the week ended July 30 in items such as vegetables, potatoes, milk, egg, meat and fish was higher on an annual basis compared to the first week of August. The inflation

CPI NUMBERS FOR AGRICULTURAL & RURAL LABOURERS RELEASED

The All-India Consumer Price Index (CPI) Numbers for Agricultural Labourers (AL)and Rural Labourers 24

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data for the week under supervision showed that except pulses which turned 5.63 per cent cheaper on a year-on-year basis, onion prices were up 37.62 per cent as were fruits by 26.46 per cent. Eggs, meat and fish were more expensive by 9.93 per cent, so was milk by 9.76 per cent. Cereals and vegetables were also dearer by 6.23 per cent and 2.59 per cent, respectively. The economic analysts pointed out that the volatile trend in food inflation is likely to continue. Food inflation was at over 14 per cent during the week ended 6 August 2010. Overall, however, while inflation in primary articles stood pegged lower at 11.64 per cent against 12.22 per cent in the previous week, inflation in non-food articles rose to 16.07 per cent from 15.05 per cent earlier. Inflation in fuel and power was also higher at 13.13 per cent for the week ended 6 August against 12.19 per cent a week ago.

REVIVAL OF THE SINDRI UNIT OF FERTILISER CORPORATION

The Cabinet Committee on Economic Affairs approved SAILs proposal for revival of the Sindri unit of Fertiliser Corporation of India at an investment of nearly Rs 35000 crore. SAIL was selected on nomination basis for allocation of land to set up a steel, power and fertiliser plants at the site. The proposed revival plan included setting up of a 5.6 million tonnes per annum (mtpa) greenfield steel making plant at an investment of Rs 26000 crore. The revival plan also included setting up of 1.15-mtpa fertiliser plant with investment of Rs 4450 crore. In addition, the plan envisaged setting up of a Rs 4000crore power plant. The total land available with FCIL at Sindri is 6652.6 acres, out of which about 5,481.6 acres will be made available for the project proposed by SAIL. The entire project will be spearheaded through a special purpose vehicle (SPV) with a PSU character. Three subsidiaries will cater to the proposed steel, fertiliser and power plants. The Sindri project will create direct/indirect employment potential for more than 5000 people. Cabinets approval to the revival plan decision paved the way for SAILs plan to expand its production capacity in Jharkhand. The Union Cabinet decision will provide significant strategic advantage to SAIL. Under the plan, the proposed steel plant will have a diversified flat product-mix catering to the highend steel market. With major growth expected from steel-using sectors like oil & gas, auto and power, SAIL will produce new products like autobody grades.Apart from the steel unit, a 1.15 mtpa gas-based urea plant is to be set up after dismantling and disposing of the existing urea plant at the site.

GOVERNMENTS DEBT ROSE 6% FIRST QUARTER

IN THE

According to the public debt management report released by the finance ministry, the Centres debt rose nearly 6% in the first quarter (April - June) of the current fiscal 2011-12 but dropped as a percentage of GDP because of the revision in GDP estimates. The total public debt of the government was Rs 31.5 lakh crore at that end of June 2011 against Rs 29.7 lakh crore at the end of March 2011. Internal debt constituted 90.3% of the total public debt. The internal debt figure increased marginally from 89.7% at the end of the January to March quarter.Indias high savings rate allows a larger share for internal debt visa-vis other countries. A small share of external debt is likely to improve the credibility of government debt and increases sustainability. The report pointed out that the overall 30.9% of outstanding stock has a residual maturity of up to 5 years, which implies that over the next five years, on an average, 6.2% of outstanding stock needs to be rolled over annually. The rollover risk in the debt portfolio therefore is expected to remain low.

SEBI PROPOSED REGULATIONS FOR ALTERNATIVE INVESTMENT FUNDS

The Securities and Exchange Board of India (SEBI) proposed to create regulations for alternative investment funds under the title SEBI (Alternative Investment Fund) Regulations. These alternative 25

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investment fund (AIF) raise capital from a number of high networth investors (HNIs) with an objective of investing in accordance with a defined investment policy for the benefit of those investors.The funds which would come under the proposed regulation include-Venture Capital Funds, PIPE Funds, Private Equity Fund, Debt Funds, Infrastructure Equity Fund, Real Estate Fund, SME Fund, Social Venture Funds, Strategy Fund. SEBI made it mandatory for all types of private pools of capital or investment funds to seek registration with SEBI. The funds could be formed as companies, trusts or body corporate including LLP structure. The fund manager/asset management company or trustees of the fund is required to be specified, and change of such entities is to be reported to SEBI. The fund at the time of application would specify the category under which it is sought registration, the targeted size of the proposed fund and its life cycle and the target investor. SEBI proposed that the funds would be close-ended.

in manufacturing and services could not be fully exploited due to lack of policy support. In manufacturing, employment declined by 7 per cent, despite a faster growth in manufacturing output. In contrast, employment grew by almost 70 per cent in the construction sector.

RBI ANNUAL REPORT: CHALLENGES TO INDIAN ECONOMY

The Reserve Bank of India in its Annual Report for 2010-11 released included discussion on (i) the assessment of the macroeconomic performance during 2010-11 and the prospects for 2011-12, and (ii) the working and operations of the Reserve Bank and its financial accounts.The central bank presented it great detail an analysis of the challenges faced by the Indian economy. The RBI considered that the immediate challenge to sustaining high growth lay in bringing down inflation, growth sustainability over mediumterm depends on addressing the structural bottlenecks. The Annual Report for 2010-11 discussed the measures adopted by the RBI to deal with the challenges that threatented to lower the economic growth.

INDIA NEEDS 55 MILLION ADDITIONAL JOBS BY 2015

According to a report from CRISIL Research, an independent research house, India needs at least 55 million additional jobs by 2015 to maintain the current ratio of employed people to total population at 39 per cent. Twice the number of jobs created during 20052010 would be required to maintain the mark. The CRISIL Research study is based on recently released National Sample Survey Organisation (NSSO) data on employment in India.CRISIL, after considering the number of people retiring or losing their jobs by 2015, new job hires would have to exceed 55 million to maintain the current ratio of employed people to total population. Total employment is the sum of people in jobs and self-employed.Job creation could not keep pace with GDP growth. The GDP growth increased to 8.6 per cent during 2005-10 from 6 per cent during 2000-05, but the net addition to jobs remained almost flat at around 27 million during the two time periodsThe CRISIL report pointed out that the employment potential emanating from faster growth 26

THE REAL ECONOMY

The RBI in its Annual Report presented a broader picture of the real economic scenerio in Inida.

Following the US sovereign rating downgrade

by S&P, oil prices fell. The August price of the Indian basket of crude was 25 per cent higher than its average during 2010-11. Empirical exercise revealed that a 10 percentage point increase in oil price would lead to a reduction in real GDP growth by about 0.3 percentage point. It would also raise WPI inflation by 1.0 percentage point through direct impact and 2.0 percentage points in total impact.

Preliminary estimates based on latest available

information showed that financial savings of the household sector moderated to 9.7 per cent of GDP in 2010-11 from 12.1 per cent in 2010-

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11. The decline in the financial savings rate of the household sector reflected the lower growth in their bank deposits and life insurance as well as decline in investment in shares and debentures.

PRICE SITUATION

Inflation became generalized since December

2010 with significant price pressures in nonfood manufacturing commodities. Drivers of inflation were found to have changed during the course of 2010-11.

2010-11. The budgets of the Central and State governments envisaged further fiscal consolidation during 2011-12. The report reccomended concerted efforts to avoid fiscal slippages in 2011-12, especially arising from higher expenditure on subsidies if global commodity and fuel prices continue at an elevated level.

EXTERNAL S ECTOR-AN OVERVIEW

Indias balance of payments improved to 2.6 per cent of GDP during 2010-11 from 2.8 per cent during 2009-10 led by a pick-up in exports during the second half and a higher invisibles surplus. Capital flows to India improved during 2010-11. However the composition and volatility of capital flows posed concern Overall, the BoP situation was believed to manageable, though continuous monitoring due to the global uncertainties would be required for the same.

Global commodity prices recovered faster than

the global economy as a result of surfeit of liquidity which resulted in creating pressure on headline inflation in India during 2010-11.

MONEY AND CREDIT

Money growth was moderate during 2010-11,

but it had picked up during the last quarter of 2010-11. Currency expansion was strong during 2010-11. The growth in currency demand was explained by high GDP growth, high inflation and low deposit rates initially.The RBI had observed that the rate of decline in velocity had accelerated. Accentuated liquidity preference and slack credit demand in the aftermath of the crisis were reflected in sharp fall in velocity.

RBI ANNUAL REPORT : PROSPECTS OF INDIAN ECONOMY

The Reserve Bank of India released its Annual Report for 2010-11. In the Annual Report the Central Board of the RBI discussed (i) the assessment of the macroeconomic performance during 2010-11 and the prospects for 2011-12, and (ii) the working and operations of the Reserve Bank and its financial accounts.Apart from providing for an assessment of the Indian economy for the year 2010-11, the report also discuused the economic prospects for 2011-12. The RBI opined that global uncertainty, sticky inflation, hardening interest rates and high base, especially for agriculture is likely to have a moderating effect on growth in 2011-12. Also, inflation would be elevated in near term and fall only towards the later part of the fiscal. Growth Outlook

FINANCIAL MARKETS

International financial markets witnessed

frequent re-pricing of risks during 2010-11, reflecting persisting uncertainties. Sovereign risk concerns, particularly in the Euro Area, affected the financial markets. Monetary policy transmission across the various segments of the financial markets strengthened during 2010-11 and till mid 2011-12 with liquidity condition shifting to a deficit mode from June 2010.

GOVERNMENT FINANCE

Growth was estimated to come down but remain

close to the trend of about 8.0 per cent in 201112. However if global financial problems 27

Combined GFD/GDP for Centre and States fell

from 9.3 per cent in 2009-10 to 7.7 per cent in

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increase and slow down global growth markedly, it would impart a downward bias to the growth projection of around 8.0 per cent indicated in the Monetary Policy.

According to the RBI report growth prospects

for the year 2011-12 would be subdued compared to 2010-11. The slowdown in performance of the economy could be attributed to high global oil and commodity prices, persistent inflationary pressures, rising input costs, rise in cost of capital due to monetary tightening and slow project execution.

consequent revenue erosion woulod further increase the fiscal deficit. The fiscal space to support any counter-cyclical policies is limited than what existed at the time of the global crisis of 2008.

CAD was expected to remain at a sustainable

level in 2011-12. Estimates of sustainable CAD suggest a threshold of 2.7-3.0 per cent of GDP. Prospects for external sector for 2011-12 remain uncertain as global uncertainties could adversely impact commodity prices and exchange rate movements.

Crop prospects remain good, though on a high

base the growth is likely to turn out to be less than last year. The monsoon up to August 17, 2011 was 1 per cent below the Long Period Average. RBIs overall foodgrains production weighted rainfall index was 101 till August 17, 2011 (88 in the corresponding period last year). Sowing up to August 12, 2011 was marginally higher than in corresponding period of the previous year.

The robust performance of exports in 2010-11

and 2011-12 currently faces downside risks as per the report. The impact of growth slowdown in the advanced economies could partly be mitigated by continued diversification of exports.

With the US and Europe constituting the bulk

of Indian software exports, some impact from a slowdown in advanced economies is to be expected. Capital flows, the RBI mentioned could surge or diminish, depending upon the degree of risk aversion. If global crisis turned deep, capital flows would moderate. On the other hand, capital flows to India could increase in spells on relative returns basis and due to large interest differentials. FDI to India in quarter 1 of 2011-12 was found to have doubled.

In 2011-12 risks to the industrial growth was

believed to be arise from falling business confidence. However robust growth of the services sector would continue to support the growth process. Private consumption could be expected to decelerate. In face of moderating demand, expenditure-switching from government consumption expenditures to public investments was likely to help.

INFLATION OUTLOOK

Inflation, the RBI believed would remain high

and moderate only towards the latter part of the year to about 7 per cent by March 2012. In case the the global recovery weakened in the latter part of the year, commodity prices would decline further. The declining of the commodity prices would go on to have a salutary impact on domestic inflation. Near zero rate policy at least till mid-2013 will be pursued. This policy stance is expected to keep the commodity prices elevated.

OUTLOOK

ON

TWIN DEFICITS

The twin deficits required close monitoring in

the backdrop of weakening global economy and the likelihood of some spillovers to the domestic economy.

According to the report, the fiscal deficit in

2011-12 is expected to be more than the budgeted projections. If the economy slows down beyond what is currently anticipated, the 28

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Given that the global oil prices stay at current in the Indian economy. FDI inflows in India in June
level, further increase in prices of administered oil products will become necessary to contain subsidies. Fertiliser and electricity prices will have to be revised upward in view of sharp rise in input costs. The report mentioned that the monetary policy has an important role to play in curbing the effects of supply-led inflation. 2010 amounted to 1.38 billion dollars only. In the April-June quarter of the current fiscal, the FDI went up by a massive 133 per cent to 13.44 billion dollars. In the last financial year 2010-11, FDI inflow into India had declined to 19.43 billion US dollars. But the inflows have maintained a positive outlook so far in the financial year 2011-12, according to the data.

GOLD CROSSED 28000 RUPEES MARK

Gold prices breached the Rs 28000-level for the first time ever in history. Gold set an all-time record of 28230 rupees per 10 grams in India on 20 August 2011. Because of the financial uncertainty in the markets, gold appealed to investors as a safer option. The heavy buying by stockists and investors in tandem with rising global trend mainly resulted into the prices touching record level. In addition, some local buying ahead of marriage season also boosted the price.Following downgrading of US credit rating by Standard and Poors (S&P), investors shifted funds from other options like equities and dollar to gold.

SINGLE-WINDOW CLEARANCE SYSTEM APPROVAL

FOR

Market regulator, Securities and Exchange Board of India (SEBI) approved a single-window clearance system for market entities like stock brokers, for grant of prior approval for change in control of their management structures.SEBI approved of the singlewindow system with an objective to expedite the process of granting prior approval (in case of change of control).In case an applicant holds multiple registrations with the regulator, it shall make only one application to SEBI providing certain information about itself and the acquirer and its directors or partners. The information sought relates to whether any application was made in the past to Sebi seeking registration in any capacity which was not granted and its details, and what kind of action was initiated on the application and its current status.The applicant is also required to furnish details on any investor complaint pending against it, details of litigation, payment of due fees to SEBI, and a guarantee that there will be no change in the Board of Directors of the firm, till the time prior approval is granted.SEBIs notification noted that any prior approval granted under the single-window system shall be valid for a period of 180 days from the date of communication.

SHOW-CAUSE NOTICE TO NSE

The capital market regulator, the Securities and Exchange Board of India (SEBI) in a first issued a show-cause notice to the countrys leading stock exchange, National Stock Exchange, following a probe into alleged client code modifications by its broker members.The bourse was asked to explain the large number of client code modifications. NSE also has to justify why action should not be taken against it for not exercising caution over such transactions. SEBI was alerted about the dealings by the Central Board of Direct Taxes, which noticed that a large number of trades were reversed by changing client codes for tax evasion. The tax department came across several instances where brokers transferred gains or losses from one individual to another by modifying client codes in the guise of rectifying an error. SEBI independently verified the information given by the income-tax authorities and found it to be true.A showcause notice is not an indictment; it however contains 29

FDI INTO INDIA UP DOLLARS

TO

5.65 BILLION US

Foreign Direct Investment into India grew 310 per cent to 5.65 billion US dollar in June 2011 as per the government data. The increase is highest in the past 11 years and it indicates revival of investor confidence

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allegations of violation. A show-cause notice requires the entity to which it is served to explain its side of the story. Stock exchanges allow client code modifications but only to rectify a genuine error that could have occurred at the time of placing or modifying the order. Every client is given a code which is registered with the stock exchanges. The broker is allowed to change it between 3.30 pm and 4 pm to rectify a genuine error that may have occurred while entering the code. The facility ensures smooth functioning of the system and is expected to be used more as an exception rather than routine. SEBI instructed bourses to impose a monetary penalty of 1% of the value of the transaction where the client codes were modified.

AGGRESSIVE LENDING BY PSBS BEHIND RISING NPAS

The countrys largest lender SBI has seen its NPAs grow to 3.52% in the last quarter against 3.14% on a quarter-on-quarter basis. It is not alone. In contrast, private sector banks are sitting pretty. Unlike their public sector brethren, they were able to use their commercial judgment (read, be conservative in their lending during the downturn). It is no surprise, therefore, that the problem of rising NPAs is largely limited to PSBs.Nonetheless, given their dominance in the banking sector, the overall level of NPAs is bound to increase as rising interest rates and increasing input costs take their toll. Add to that the prospect of a slowdown in GDP growth the baseline projection is now 8.2% compared to 8.5% in the previous yearand you have a recipe for a further increase in NPAs. Inevitably, the Bankex (stock market index of banks shares) has fallen more than Sensex, reflecting fears that banks will be relatively more severely affected by any slowdown in growth. The Gross Non-performing Assets (NPA) of Public Sector Banks (PSBs) for the period ending March, 2011 stood at Rs. 71,047 crore.The Gross NPA of State Bank of India for the period ending March, 2011 was Rs. 23,074 crore which constitutes 32% of total Gross NPAs of the PSBs.

DEMAND FOR EMPLOYMENT UNDER MGNREGA GROWS

A total of 5.49 crore households was provided employment under Mahatma Gandhi National Rural Employment Guarantee Scheme, MGNREGS, during 2010-2011 as against 5.26 crore households the previous year, thus marking an increase in the number of persons given jobs in rural areas under the scheme. But the persondays generated in 2010-2011 was 257.15 crore as compared to 283.59 crore in 20092010, showing a decline in average persondays per household. The employment is provided on demand and the major reasons for the decline by some State Governments are good monsoon, higher wage rate in open market, other employment opportunities available, greater transparency and accountability and local disturbances and agitations. So far, the participation of SCs, STs and Women under MGNREGA is concerned, there was no decline this year in comparison to 2009-2010. The participation of SCs, STs and Women was 30%, 21% and 48% respectively out of total persondays generated in 2009-2010, while it was 31%, 21% and 48% respectively in 2010-2011.

PREPAID PAYMENT INSTRUMENTS LISTED CORPORATES

TO

In a circular issued the RBI declared that prepaid payment instruments such as smart cards, magnetic stripe cards, mobile wallets paper vouchers, gift cards and travel cards could be issued by banks only to corporates listed in India. Prepaid payment instruments could be issued only to corporate entities listed in any of the stock exchanges in India. The corporate entities would have to verify the identity of the employee to whom the card would be issued, along with copies of photograph and a proof of identity. Also, the corporate are required to provide details of bank accounts of the employee to the bank.RBI

30

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mentioned that the maximum value of an individual prepaid payment instrument should not exceed Rs.50000. The money in the prepaid instruments would be loaded by debit to the bank account after fulfilling all know-your-customer (KYC) norms. Corporates usually avail themselves of this facility from the bank for onward issuance to their employees. Prepaid payment instruments facilitate purchase of goods and services against the value stored in it and the value The central bank directed the banks to transfer funds from such prepaid instruments to a regular bank account of the employee if the same has been requested for.

1200 CRORE INTO AIR INDIA

The Cabinet Committee on Economic Affairs (CCEA) approved equity infusion of Rs.1200 crore into the cash-strapped national carrier Air India. Air India had so far received financial assistance amounting to Rs 2000 crore in the last two financial years while its cumulative loss and debt burden is around Rs 67000 crore. The equity induction would not only ease the cash flow situation of the company Air India which is passing through critical financial crunch. The cash flow would also preclude borrowings from the markets at high costs.The airline has a debt of Rs.4695 crore on an equity base of Rs.2145 crore.

Financial Intelligence Unit (FIU) made operational its ambitious intelligence network project sanctioned in 2006.The earlier prescribed multiple data files reporting format is set to be replaced by a new XML file format. Three new formats -account-based reporting, format and transaction-based reporting format for filing STRs, CTRs and NTRs and a separate reporting format to file CCRs were introduced and notified to RBI , SEBI and IRDA and other relevant entities. The new network, called FINnet (Financial Intelligence Network)deployed to tackle the menace of black money is a technologybased secure platform for bringing together investigative and enforcement agencies to collect, analyse and disseminate valuable financial information for combating money laundering and related crimes. The civil society in the recent past stepped up pressure on the government to unearth black money and introduced various measures to crack down on financial scams, frauds and large-scale tax evasion.

PSBS TO BOOST CREDIT TO SMALL INDUSTRY & FARMERS

The Union government suggested the state-run banks to focus on traditionally-credit starved areas, such as small industry and agriculture, while credit demand from big industry moderates. Reserve Bank of India revised the credit growth target to 18% from 19% in 2011-12 after it raised the key rates by sharp 0. 5 percentage points in its monetary policy review on 26 July 2011. The RBI raised the repo rate for the eleventh time since March 2010 to curb runaway inflation. Finance Minister, Pranab Mukherjee also raised the issue of increased lending in the agriculture sector. Currently, the banking system only covers 50% of the farmers in India. The government set a target of Rs. 475000 crore bank credit for the farm sector in 2011-12. Banks that did not meet the targets for agriculture lending in the last three years were asked to step up their loan portfolios.

FINANCE MINISTRIES STEPS TO COMBAT BLACK-MONEY MENACE

The Finance Ministry under pressure to unearth black money modified the format for reporting suspicious transactions to help enforcement and regulatory agencies take prompt action to deal with the menace. The new reporting formats such as Suspicious Transaction Reports (STRs), Cash Transaction Reports (CTRs), Counterfeit Currency Reports (CCRs) and Non-Profit Organisation Transaction Reports (NTRs) were introduced after the

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