Pink Sleep by CEOs

Repo Rates & Reverse Repo Rates

In a situation like what we face in the Indian economy Today, with Food Inflation at its all time peak, RBI is toying with the idea of containing physical money supply from the system.

One of the Tools which RBI uses is the Repo and the Reverse repo Rates manipulation and it operates this way:

Repo is a facility extended by RBI to the Banks to borrow short term against its gilt securities. Any increase in the Repo rates dampens the enthusiasm of Banks to borrow against such securities and any decrease in it influences Banks to borrow.

Repo rates are characterised by sale followed by purchase of securities. When securities are sold to RBI, more money is released and the opposite effect takes place when Reverse Repo rates are applied by RBI when it sells its securities to Banks and follows it up with purchase on maturity.

Repo and Reverse Repo thus help the RBI control money supply.If it wants to squeeze it, RBI will increase both the repo and the reverse repo rates, and does the opposite if it wants to increase the money supply in the economy.

Green Money Transfer - Through Mobile Phones

Now, Funds Transfers between Two Individuals for settlement of financial transaction is made possible through the Mobile Cell Phones outside of Banks' Network of Branches.

This facility is a Boon to Rural India's vast population who are dependent on Banks' Branch network available in the vicinity of the villages to carry out such cash transactions.

Corporation Bank and Tata Indicom have tied up for such cash transactions to be put through these Mobile Cellphones to cater to the needs of rural India.

Reserve Bank of India has permitted Banks to operate these Money Transfers through Mobile Phones with a Limit of Rs.5000/- per transaction to start with. For further details on the operative part of the scheme can be accessed from these Links:

http://prashantnepayments.blogspot.com/2009/11/product-launch-corporation-bank-green.html

http://www.paymate.co.in/green/

http://www.tata.com/article.aspx?artid=48AbTWkt4WI=

Bharti/MTN transaction, and India's problem of capital controls

Bharati / MTN deal of $23 billion fell through on the question of Dual currency Listings and Capital Account Convertibility issues which the Government of India could not possibly decide on in a hurry. But this important capital control issue needs to be addressed by the Government sooner than later in view of the FDI inflows into Indian capital markets and also India being one of the leaders of emerging markets which has fairly withered the recessionary storm than the developed economies of the world. Here is a link from Dr.Ajay Shah's blog on this issue.

Ajay Shah's blog: Bharti/MTN transaction, and India's problem of capital controls

Leadership - That Mysterious Talents

The India Leadership Network is one of the very few knowledge based social network group wherein I find really thought provoking experts write on the blogsite. This particular presentation on Leadership -That Mysterious Talents - is inspiring and lucid to the readers to understand the concepts. Here is the link for the readers. Copy and paste

http://www.youtube.com/watch?v=UDp87fxfXoM&feature=player_embedded

BC Model for Financial Inclusion

Reserve Bank of India Working Group has recommended the following new entities for appointment of Business Correspondents (BCs) for banks in rural and semi-urban areas;suggests New Entities for BC- RBI Working Paper.

RBI press release dated 19th Aug 2009 states that business correspondence model is vital for financial inclusion and suggests new entities for BCs.The RBIlink is appended:

http://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/IEPR278RWGBC.pdf

Cash Withdrawals @ Point Of Sale

The Reserve Bank Of India under the Payments & Settlements System Act,2007 has circulated among all system providers/scheduled commercial banks to permit cash withdrawals through Debit Cards at POS terminals at different Merchant Establishments alongside the existing ATM centres as the transactions at POS/member Establishments are steadily increasing in the country.

The Bank Boards have to place these proposals to give effect to this guidelines from RBI and the limit upto which cash can be withdrawn is presently fixed at Rs.1000.00. The relevant circular of RBI dt 22nd July 2009 is apended.

RBI/2009-10/105

DPSS.CO.PD.No. 147/02.14.003/ 2009-10

22nd July 2009

To

All System Providers (VISA / MasterCard / American Express),

All Scheduled Commercial banks

Dear Sir,

Cash Withdrawal at Point-of-Sale (POS)

Presently cash withdrawal facility using plastic cards is available only at Automatic Teller Machines (ATMs). As on May 31, 2009, number of ATMs and POS terminals in the country stood at 44,857 and 4,70,237 respectively. The use of debit cards at Point-of-Sale (POS) terminals at different merchant establishments has been steadily increasing. As a further step towards enhancing the customer convenience in using the plastic money, it has been decided to permit cash withdrawals at POS terminals. To start with, this facility will be available for all debit cards issued in India, upto Rs.1000/- per day.

2. The conditions subject to which this facility is being extended is given in the annex(given above)

3. Banks may obtain the approval of their Board of Directors for offering this facility. The note put up to the Board should incorporate the product profile, risk perceived by the bank and the risk mitigation measures.

4. This circular is being issued in exercise of the powers conferred on the Reserve Bank under Section 18 of the Payment and Settlement Systems Act, 2007 (Act 51 of 2007).

Yours faithfully

(G.Padmanabhan)

Chief General Manager

Tackling the menace of Fake Notes

As we hear from the media the MENACE OF FAKE NOTES being circulated alongside the real currency notes,RBI has released the final report of High Level RBI Group suggested steps to check the menace of Fake Notes on 12th August 2009.The copy of the press note can be accessed at this link:

http://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=21174

RBI has initiated several steps to curb this menace - the latest being the promotion of use of Cards and Electronic means of payment and installation of Note Detectors at places where large volume of cash transactions are conducted.

Further, RBI may disincentivise the use of Cash as it has to be recognised that processing of cash involves Cost that has to be recovered. the complete report can be accessed at this link:

http://rbi.org.in/scripts/PublicationReportDetails.aspx?UrlPage=&ID=554