current affairs economy september 2011

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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 ofIndia (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

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 thedate 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 OUTLOOKSURVEY

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 July-September 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

ECONOMY


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manufacturing companies which are not approached

by CERPA can also par ticipate in the survey by

downloading the survey schedule from RBIs official

website.

WHATIS 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 MARKETIN INDIAWILLBE

$ 4.5 BILLION

According to a study Private Cloud Landscape inIndia 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 opportunitiesfor 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.

IT COMPANIESTO

GROW GLOBALLYAT 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 inthe 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.

INDIAN BANKING INDUSTRYTOBE 3RD LARGEST

INTHE WORLDBY 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

bench ma rk of 82 pe r cent observed by BCG

globally.Indian banks, the report mentioned were to


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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 GENERALOF HYDROCARBONWILL

BEMORE 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 toinvestment 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.

CPI NUMBERSFORAGRICULTURAL & RURAL

LABOURERS RELEASED

The All-India Consumer Price Index (CPI) Numbers

for Agricultural Labourers (AL)and Rural Labourers

(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 INFLATIONFALLSTO 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. Forinstance, 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


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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.

GOVERNMENTS DEBTROSE 6% INTHE

FIRST QUARTER

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 lakhcrore 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 vis-

a-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% ofoutstanding stock needs to be rolled over annually.

The rollover risk in the debt portfolio therefore is

expected to remain low.

REVIVALOFTHE SINDRI UNITOF FERTILISER

CORPORATIONThe 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 4000-crore 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 UnionCabinet 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 auto-

body 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.

SEBI PROPOSED REGULATIONSFOR

ALTERNATIVE INVESTMENT FUNDS

The Securities and Exchange Board of India (SEBI)

proposed to create regula tions for al terna tive

investment funds under the title SEBI (Alternative

Investment Fund) Regulations. These alternative


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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.

INDIA NEEDS 55 MILLION ADDITIONAL JOBSBY

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 percent. Twice the number of jobs created during 2005-

2010 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 during2000-05, 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

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: CHALLENGESTO

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 greatdetail 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 medium-

term 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.

THE REAL ECONOMY

The RBI in its Annual Report presented a broaderpicture 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 non-

food manufacturing commodities. Drivers of

inflation were found to have changed during

the course of 2010-11.

Global commodity prices recovered faster than

the global economy as a result of surfeit ofliquidity which resulted in creating pressure on

headline inflation in India during 2010-11.

MONEYAND 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.

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

Combined GFD/GDP for Centre and States fell

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

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 SECTOR-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 man ag eabl e, th ough conti nuous

monitoring due to the global uncertainties would be

required for the same.

RBI ANNUAL REPORT :

PROSPECTSOF 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 theprospects 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

Growth was estimated to come down but remain

close to the trend of about 8.0 per cent in 2011-

12. However if global financial problems


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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.

Crop prospects remain good, though on a high

base the growth is likely to turn out to be lessthan 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.

In 2011-12 risks to the industrial growth was

believed to be ar ise 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.

OUTLOOKON 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

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.

The robust performance of exports in 2010-11

and 2011-12 currently faces downside risks asper 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.

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.


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Given that the global oil prices stay at current

level, further increase in prices of administeredoil 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.

SINGLE-WINDOW CLEARANCE SYSTEMFOR

APPROVAL

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 single-

window 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 onthe 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.

FDI INTO INDIAUPTO 5.65 BILLION US

DOLLARS

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

in the Indian economy. FDI inflows in India in June

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.

SHOW-CAUSE NOTICETO 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 stockexchange, 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 modifyingclient 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 show-

cause notice is not an indictment; it however contains


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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.

DEMANDFOREMPLOYMENT 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 2009-

2010, 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

pa rti cipa ti on of SCs, STs and Women un der

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 in2009-2010, while it was 31%, 21% and 48%

respectively in 2010-2011.

AGGRESSIVE LENDINGBY

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 ri sing in terest ra tes an d

increasing input costs take their toll. Add to that theprospect 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 totalGross NPAs of the PSBs.

PREPAID PAYMENT INSTRUMENTSTO

LISTED CORPORATES

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


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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 CROREINTO AIRINDIA

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.4695crore on an equity base of Rs.2145 crore.

FINANCE MINISTRIES STEPSTO

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 TransactionReports (NTRs) were introduced after the

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 technology-

ba sed secu re pla tform for br in gin g together

investigative and enforcement agencies to collect,

analyse and disseminate valuable financialinformation 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.

PSBSTO BOOST CREDITTO

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 askedto step up their loan portfolios.


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