Liabilities and Assets of the Reserve Bank of India : 2012 and 2013

(Amount in ` million)

Liabilities

As on
March 31, 2012

As on March 31, 2013

Assets

As on
March 31, 2012

As on March 31, 2013

(1)

(2)

(3)

(4)

BANKING DEPARTMENT

1. Capital paid-up

50

50

1. Notes

130

92

2. Rupee coin

1

2. Reserve fund

65000

65000

3. Small coin

4. Bills purchased and discounted

3. National Industrial Credit 
(long-term operations) Fund

200

210

(a) Internal

(b) External

(c) Government Treasury bills

4. National Housing Credit 
(long-term operations) Fund

1940

1950

5. Balances held abroad

3087187

2930963

6. Investments@

5980338

6821578

7. Loans and advances to:

10289

10159

5. Deposits

3929047

4008406

(i) Central Government

(ii) State Government

10289

10159

a) Government

241947

666466

8. Loans and advances to:

75073

421119

(i) Scheduled Commercial Banks

48474

403446

(i) Central Government

241522

666042

(ii) Scheduled State Co-operative Banks

(ii) State Government #

425

424

(iii) Other Scheduled Co-operative Banks

92

(iv) Non-scheduled State Co-operative Banks

b) Banks

3562915

3206711

(v) National Bank for Agriculture and Rural Development (NABARD)

(i) Scheduled Commercial 
Banks

3373574

3018916

(vi) Others

26599

17581

9. Loans, advances and investments from National Industrial Credit (long-term operations) Fund

(ii) Scheduled State 
Co-operative Banks

37592

35313

(a) Loans and advances to:

(i) Industrial Development Bank of India

(ii) Export Import Bank of India

(iii) Other Scheduled 
Co-operative Banks

57148

59534

(iii) Industrial Investment Bank of India

(iv) Others

(b) Investments in bonds/debentures issued by:

(iv) Non-scheduled State 
Co-operative Banks

860

2522

(i) Industrial Development Bank of India

(ii) Export Import Bank of India

(iii) Industrial Investment Bank of India

(v) Other banks

93741

90426

(iv) Others

c) Others

124185

135229

10. Loans, advances and investments from National Housing Credit (long-term operations) Fund

(a) Loans and advances to National Housing Bank

6. Bills payable

9447

228

(b) Investments in bonds/debentures issued by National Housing Bank

7. Other liabilities

5898808

6880060

11. Other assets *

751474

771993

Total Liabilities

9904492

10955904

Total Assets

9904492

10955904

ISSUE DEPARTMENT

1. Notes held in the 
Banking department

130

92

1. Gold coin and bullion

724435

732225

(i) Held in India

724435

732225

(ii) Held outside India

2. Notes in circulation

10537859

11756354

2. Foreign Securities

9802249

11011884

Total (1+2)

10526684

11744109

3. Rupee coin

841

1873

4. Government of India rupee securities

10464

10464

5. Internal bills of exchange & other commercial paper

Total Liabilities (Total notes issued)

10537989

11756446

Total Assets

10537989

11756446

Note : * Includes gold valued at Rs.658067.10 million as on March 31, 2012 and Rs.665143.40 million as on March 31, 2013. 
@ : Includes Foreign Currency Asset of Rs. 447751.3 million as on March 31, 2012 & Rs.238116.2 million as on March 31, 2013 which forms part of balances held abroad. 
# : Includes the balance of Government of Union Territory of Puducherry. 
Source : Weekly Statement of Affairs of the Reserve Bank of India, Department of Government and Bank Accounts.

Liabilities and Assets of the Reserve Bank of India : 2012 and 2013

(Amount in ` million)

Liabilities

As on
March 31, 2012

As on March 31, 2013

Assets

As on
March 31, 2012

As on March 31, 2013

(1)

(2)

(3)

(4)

BANKING DEPARTMENT

1. Capital paid-up

50

50

1. Notes

130

92

2. Rupee coin

1

2. Reserve fund

65000

65000

3. Small coin

4. Bills purchased and discounted

3. National Industrial Credit 
(long-term operations) Fund

200

210

(a) Internal

(b) External

(c) Government Treasury bills

4. National Housing Credit 
(long-term operations) Fund

1940

1950

5. Balances held abroad

3087187

2930963

6. Investments@

5980338

6821578

7. Loans and advances to:

10289

10159

5. Deposits

3929047

4008406

(i) Central Government

(ii) State Government

10289

10159

a) Government

241947

666466

8. Loans and advances to:

75073

421119

(i) Scheduled Commercial Banks

48474

403446

(i) Central Government

241522

666042

(ii) Scheduled State Co-operative Banks

(ii) State Government #

425

424

(iii) Other Scheduled Co-operative Banks

92

(iv) Non-scheduled State Co-operative Banks

b) Banks

3562915

3206711

(v) National Bank for Agriculture and Rural Development (NABARD)

(i) Scheduled Commercial 
Banks

3373574

3018916

(vi) Others

26599

17581

9. Loans, advances and investments from National Industrial Credit (long-term operations) Fund

(ii) Scheduled State 
Co-operative Banks

37592

35313

(a) Loans and advances to:

(i) Industrial Development Bank of India

(ii) Export Import Bank of India

(iii) Other Scheduled 
Co-operative Banks

57148

59534

(iii) Industrial Investment Bank of India

(iv) Others

(b) Investments in bonds/debentures issued by:

(iv) Non-scheduled State 
Co-operative Banks

860

2522

(i) Industrial Development Bank of India

(ii) Export Import Bank of India

(iii) Industrial Investment Bank of India

(v) Other banks

93741

90426

(iv) Others

c) Others

124185

135229

10. Loans, advances and investments from National Housing Credit (long-term operations) Fund

(a) Loans and advances to National Housing Bank

6. Bills payable

9447

228

(b) Investments in bonds/debentures issued by National Housing Bank

7. Other liabilities

5898808

6880060

11. Other assets *

751474

771993

Total Liabilities

9904492

10955904

Total Assets

9904492

10955904

ISSUE DEPARTMENT

1. Notes held in the 
Banking department

130

92

1. Gold coin and bullion

724435

732225

(i) Held in India

724435

732225

(ii) Held outside India

2. Notes in circulation

10537859

11756354

2. Foreign Securities

9802249

11011884

Total (1+2)

10526684

11744109

3. Rupee coin

841

1873

4. Government of India rupee securities

10464

10464

5. Internal bills of exchange & other commercial paper

Total Liabilities (Total notes issued)

10537989

11756446

Total Assets

10537989

11756446

Note : * Includes gold valued at Rs.658067.10 million as on March 31, 2012 and Rs.665143.40 million as on March 31, 2013. 
@ : Includes Foreign Currency Asset of Rs. 447751.3 million as on March 31, 2012 & Rs.238116.2 million as on March 31, 2013 which forms part of balances held abroad. 
# : Includes the balance of Government of Union Territory of Puducherry. 
Source : Weekly Statement of Affairs of the Reserve Bank of India, Department of Government and Bank Accounts.

Results of Underwriting Auctions

In the auctions conducted on November 21, 2013 for Additional Competitive Underwriting (ACU) of the undernoted government securities, the Reserve Bank of India has set the cut-off rates for underwriting commission payable to Primary Dealers as given below:

(` crore)   

Nomenclature of the Security

Notified Amount

Minimum Underwriting Commitment (MUC) Amount

Additional Competitive Underwriting Amount Accepted

Total Amount underwritten

ACU Commission Cut-off rate
(paise per `100)

7.28 % GS 2019

3000

1512

1488

3000

3.24

New 10 year GS 2023

7000

3507

3493

7000

1.24

8.32 % GS 2032

2000

1008

992

2000

13.80

8. 30 % GS 2042

3000

1512

1488

3000

17.00

 

Billionaire Birla Said to Delay Idea Share Sale: Corporate India

Billionaire Kumar Mangalam Birla’s Idea Cellular Ltd. (IDEA) delayed a stock sale as it awaits clarity on Indian spectrum licenses, said a person with knowledge of the decision.

India’s No. 2 mobile-phone operator may start the sale to institutions to raise as much as 30 billion rupees ($481 million) next year after originally aiming to complete it this month, according to two people. They asked not to be identified because the deliberations are private. Idea aimed to sell shares for least 190 rupees each, one of the people said.

Mobile-phone providers are balking at an Indian government panel’s proposal to peg the cost of the most widely used airwaves above that recommended by the industry regulator.Bharti Airtel Ltd. (BHARTI)India’s biggest wireless carrier, faces risks as the cost of renewing airwave licenses increases amid an “erratic” policy environment, Moody’s said this month.

Idea “could be waiting for clarity on all these spectrum-related issues,” said Harit Shah, an analyst with Nirmal Bang Institutional Equities in Mumbai who has a “buy” rating on the stock. “They would look at financing only to fortify their balance sheet and for the spectrum renewal.”

A panel in India’s telecommunications ministry has recommended an increase of as much as 25 percent for airwaves to be sold in January over prices advised by industry supervisor Telecom Regulatory Authority of India in September. The proposal needs to be approved by a group of ministers.

‘Overall Scenario’

Idea announced plans in August to raise money through a share sale to institutional investors. The company will also sell as much as 7.5 billion rupees of stock to an existing shareholder,Malaysia’s Axiata Group Bhd. (AXIATA), it said at the time.

“We have time for one year,” Managing Director Himanshu Kapania said on an earnings conference call Oct. 25, referring to the share sale. “We’re closely watching the situation and we will evaluate the overall scenario and then take a call” on the timing and the size of the sale, he said then.

Idea fell 0.8 percent to 174.40 rupees as of 2:16 p.m. in Mumbai trading. The stock has surged 68 percent this year compared with a 7.4 percent advance by the benchmark S&P BSE India Sensex and Bharti’s 9.7 percent gain.

Idea’s board had approved the share sale to fund spectrum acquisition, said Urmil Shah, a Mumbai-based analyst at Kim Eng Securities Ltd. “There is still some uncertainty over the auction front. They are likely waiting for clarity on the price and timing of the auction.” He rates Idea shares “buy”.

Spectrum Renewal

India’s telecommunications regulator in September recommended lowering reserve prices for the nation’s airwaves after an auction in March drew just one bidder.

Idea has to prepare starting in 2014 for the renewal of some licenses that expire in late 2015, Kapania told investors on the conference call last month. The company also doesn’t currently have airwaves to offer third-generation wireless services in half the country, he said at the time, signaling it may need to spend for the spectrum.

There is no pressing need for Idea to raise money since it has good cashflows, said Nirmal Bang’s Shah.

Cash flow from operations almost doubled to 53.7 billion rupees in the year ended March, according to data compiled by Bloomberg. The Mumbai-based company had net debt of 129 billion rupees as of March 31, the data show.

Bank of America Corp., Citigroup Inc., Morgan Stanley, Standard Chartered Plc, JPMorgan Chase & Co. and Axis Bank Ltd. will manage the share sale, the people familiar said.

Rajat Mukarji, a spokesman for Idea, declined to comment yesterday on the share sale.

Indian companies have raised 405 billion rupees through domestic equity and equity linked offerings in 78 transactions so far this year, according to data compiled by Bloomberg. In 2012, a total of 578 billion rupees was raised in 70 transactions.

( Source : Bloomberg)

VIX Trader Betting $13 Million on 88% Jump in Fear Gauge

An investor bought $13 million in call options on the Chicago Board Options Exchange Volatility Index, betting the gauge will rally at least 88 percent in the next four months.

About 100,000 VIX March calls were purchased with a strike price of 23 for about $1.30 each, according to Trade Alert LLC. The contracts were among the five most-traded on U.S. options exchanges today, based on data compiled by Bloomberg.

In another transaction, a person spent $5.1 million in a bet that the Standard & Poor’s 500 Index will rise more than 10 percent in the next three months. The trade involved buying about 31,000 February calls for about $1.65 per contract with an exercise price of 1,975 on the U.S. equity benchmark, according to Trade Alert.

“The S&P 500 (SPX) trade looks like a melt-up trade and the VIX trade is the melt-down trade,” Justin Golden, a partner at Lake Hill Capital Management LLC, said in an e-mail. The New York-based hedge fund trades options on equity indexes and commodities. “Either way, in order for either of these to pay off you need significant movement in some direction.”

The two trades — one that makes money with higher volatility, the other profiting with equity gains — show seemingly opposing wagers on the direction of the stock market as investors gauge the prospect of continued monetary stimulus after a four-yearbull market. The transactions may be used to speculate on the direction of the VIX (VIX) or S&P 500, or to hedge swings in other investments.

‘More Hopeful’

The S&P 500 is up 25 percent this year, putting it on track for the biggest annual gain since 2003, as the Federal Reservemaintained bond purchases to spur economic growth and corporate earnings topped analysts’ estimates. Investors may see political turmoil over the next three months as Congress’s self-imposed deadline to agree on a fiscal 2014 budget comes next month and the law now funding the government expires Jan. 15.

The S&P 500 fell 0.1 percent to 1,789.25 at 3:32 p.m. in New York. The VIX, which moves in opposite direction of the equity gauge about 80 percent of the time, gained 2.1 percent to 13.38. The VIX was about 12.9 when the calls were purchased this morning.

‘Real Money’

It’s possible that the trades were done by the same firm, according to Neil Azous of Rareview Macro LLC.

“The less obvious conclusion is that a very large real money investor purchased both equity and volatility upside, based on the argument that we may see higher U.S. equities and higher volatility in 2014,” Azous, founder of the Stamford, Connecticut-based advisory and research firm, said in an interview. “That could happen as we exit the current monetary environment, while world economic growth continues to improve, putting upward pressure on bond yields and stress on emerging markets.”

The Organization for Economic Cooperation and Development cut its global growth forecasts for this year and next as emerging-market economies including India and Brazil cool. The world economy will probably expand 2.7 percent this year and 3.6 percent next year, instead of the 3.1 percent and and 4 percent predicted in May, the Paris-based OECD said today.

Another large VIX trade today suggests an investor is wagering the volatility gauge may climb above 21 in the next three months. In a strategy known as a call spread, about 100,000 VIX February 20 calls were bought and the same number of February 28 calls were sold, according to New York-based Trade Alert.

The trade, which cost $10.4 million, will profit if the volatility gauge rises above 21.04 by the expiration, data compiled by Bloomberg show. It has a maximum payoff if the VIX jumps 114 percent to 28 from yesterday’s close.

Source: Bloomberg

Industry doesn’t need protection, says Rajan [Financial Express (India)]

Reserve Bank of India (RBI) governor Raghuram Rajan on Friday asserted that Indian industry did not need to be treated with kid gloves, expressing concern the country seemed “to be reverting to a dialogue of protection and subsidies that we left behind long ago”.

Addressing Bancon 2013, the governor pointed out that industry was no longer an infant that needed to be mollycoddled. “While we should not enter into free-trade agreements that give foreign manufacturers an undue advantage, that is no reason for us to now respond by giving domestic manufacturers protection. We must remember that one domestic producer’s advantage from protectionist profits is paid for by the consumer, or shows up as another domestic producer’s cost disadvantage.” Rajan said.

Calling for a a strong bankruptcy law to aid recovery of loans by banks and asserting that a deeper corporate bond market was needed to address long-term financing needs, given how much of the toxic assets were in the infrastructure sector, the governor noted that the short tenures of bank chiefs has been part of the problem. “The natural and the worst way for a bank management, with limited tenure, to deal with distress is to extend and pretend to evergreen the loan, hope it recovers by a miracle, or that one’s successor has to deal with it,” he said.

Rajan called for early recognition of financial distress, saying the RBI will incentivise better resolution of distressed loans. “In the next few weeks, we announce measures to incentivise early recognition, better resolution and fair recovery of distressed loans,” Rajan said on Friday at the annual banking summit organised by the Indian Banks’ Association.

Cautioning banks from allowing the weakness in assets to fester or from postponing the problem by evergreening, the governor said, “You can put lipstick on a pig but it doesn’t become a princess.”

While restructuring of loans was a legitimate exercise that helped corporates and banks, changing the terms of the loan only to avoid provisioning, the governor said, must be avoided. “I think one has to be very clear that we shouldn’t meddle too much with accounting but focus on bringing the asset back on track, and if there are impediments in doing that, we will look into that as much as we can,” Rajan said.

The central bank will implement several recommendations of its internal committee on deepening and broadening the bond market over the next few weeks, Rajan said. A deep and liquid market will help banks reduce exchange rate and interest rate risk and also allow companies to raise funds through equity.

The issue of distressed assets has been a cause for concern with both slippages and restructuring going up in the last couple of years.

A sluggish economy, an acute shortage of raw materials and policy paralysis have left corporate finances weaker, forcing several of them to approach banks for more lenient repayment terms. While non-performing assets have already hit 4% of total assets, loan recast requests worth approximately Rs 1 lakh crore are expected to be placed before the corporate debt restructuring (CDR) cell this year. Between April and October 2013, the cell has approved Rs 43,000 crore for recast. As FE reported recently, nearly 20% of the amounts restructured via the CDR route could go bad.

Rajan said that the RBI is very focused on controlling inflation as high inflation affects all segments of the society. The governor said that a weak economy will itself bring down inflationary pressures and the RBI would take the necessary steps to bring it down further. “We are going to look at data, understand where we are and take further action on that basis,” he said.

The governor said that the central bank has interest rates as the only tool to address inflation and that it is a blunt tool to be used carefully. India’s wholesale price-based inflation rose to an eight-month high of 7% in October. Retail inflation too showed a rise to 10.07% from 9.84% in September, indicating that inflationary pressures are persisting.

Rajan noted that the 2% growth in industrial output does not augur well for an economy on the recovery path. However, he hoped that higher agricultural output – both kharif and rabi – and improving exports could provide a fillip to growth.

Banks have been accused of evergreening loans by changing the repayment structure just to avoid classifying the asset as a non-performing one, even as promoters have been blamed for wilfully defaulting at times. The government and the regulator in recent months have asked bankers to get tough on defaulters and only entertain genuine cases of restructuring.

Copyright 2013 The Indian Express Online Media Pvt. Ltd., distributed by Contify.com

Result of Yield Based Auctions of State Development Loans of ten State Governments

Sr. No.

State

Notified Amount
(` Crore)

Amount Accepted
(` Crore)

Tenor (Years)

Cut-off Yield (Percent)

1

Andhra Pradesh

1,750

1,004.878

10

9.39

2

Goa

150

150.000

10

9.40

3

Gujarat

1,000

1,000.000

10

9.39

4

Haryana

470

Nil

10

5

Kerala

750

750.000

10

9.37

6

Maharashtra

1,500

1,500.000

10

9.39

7

Nagaland

130

130.000

10

9.40

8

Rajasthan

500

500.000

10

9.40

9

Tamil Nadu*

1,200

1,500.000

10

9.39

10

West Bengal

1,000

1,000.000

10

9.42

 

Total

8,450

7,534.878

 

 

*Govt of Tamil Nadu has retained additional subscription of `300 cr over the notified amount

Government of India announce the sale of four dated securities for ` 15,000 crore on November 22, 2013

The Government of India have announced the sale (new issue/re-issue) of four dated securities as per the following details:

Sr No.

Security

Notified Amount (` Cr)

Auction Date

Settlement date

1

7.28 % Government Stock 2019

3,000

November 22, 2013
(Friday)

November 25, 2013
(Monday)

2

New 10 year Government Stock 2023

7,000

3

8.32 % Government Stock 2032

2,000

4

8.30 % Government Stock 2042

3,000

The auctions will be conducted using uniform price method. Up to 5% of the notified amount of the sale of the stocks will be allotted to eligible individuals and Institutions as per the Scheme for Non-Competitive Bidding Facility in the Auction of Government Securities.

Both competitive and non-competitive bids for the auction should be submitted in electronic format on the Reserve Bank of India Core Banking Solution (E-Kuber) system on November 22, 2013. The non-competitive bids should be submitted between 10.30 a.m. and 11.30 a.m. and the competitive bids should be submitted between 10.30 a.m. and 12.00 noon. The result of the auctions will be announced on November 22, 2013.

The stocks will qualify for the ready forward facility.

The underwriting of the Government Securities under auctions by the ‘Primary Dealers’ will be as per the “Revised Scheme of Underwriting Commitment and Liquidity Support” announced by the Reserve Bank vide circular RBI/2007-08/186 dated November 14, 2007. Bids for underwriting of the Additional Competitive Underwriting (ACU) portion can be submitted by ‘Primary Dealers’ from 10:30 AM up to 12.00 noon on November 21, 2013 (Thursday) on the Reserve Bank of India Core Banking Solution (E-Kuber) system.

The Stocks will be eligible for “When Issued” trading for a period commencing from November 19, 2013–November 22, 2013 in accordance with the guidelines on ‘When Issued transactions in Central Government Securities’ issued by the Reserve Bank of India vide circular No. RBI /2006-07/178 dated November 16, 2006 as amended from time to time.

The new ten year stock will be reckoned as an eligible investment in Government Securities by banks for SLR purpose under Section 24 of the Banking Regulation Act, 1949.

Results of OMO purchase auction held on November 18, 2013

Settlement on November 19, 2013

I. SUMMARY RESULTS

Aggregate Amount (Face value) notified by RBI          

:

` 8,000.00 crore

Total amount offered (Face value) by participants        

:

` 13,765.94 crore

Total amount accepted (Face value) by RBI                

:

` 6,156.74 crore

II.  DETAILS OF EACH ISSUE

Security

7.17 % GS 2015

7.59 % GS 2016

7.83% GS 2018

8.20 % GS 2025

No. of offers received

78

16

27

81

Total amount (face value) offered (` in crore)

5650.38

2104.84

1981.94

4028.78

No. of offers accepted

55

3

11

37

Total amount (face value) accepted by RBI 
(` in crore)

3732.98

1000.60

382.05

1041.11

Cut off yield (%)

8.4963

8.5573

8.6332

9.1552

Cut off price (`)

98.08

97.93

97.10

93.16

Weighted average yield (%)

8.5520

8.5930

8.6834

9.1726

Weighted average price (`)

98.00

97.86

96.92

93.04

Partial allotment % of competitive offers

N.A.

N.A.

N.A.

N.A.

 

Onions Bring Tears to RBI’s Rajan as Prices Surge: India Credit

Record onion prices and the soaring cost of rice and coriander are frustrating Reserve Bank ofIndia Governor Raghuram Rajan’s battle to curb inflation while supporting growth in Asia’s third-largest economy.

The wholesale-price index for onions, a staple food for India’s 1.24 billion people, has climbed 155 percent this year, hitting an all-time high of 820.5 in September, according to the Ministry of Commerce and Industry. The index, set at 100 in 2004, has almost quadrupled in 12 months. A broader measure for food is up 19 percent in 2013, while spot prices for coriander climbed about 29 percent and basmati rice advanced 40 percent.

The RBI has said that it faces an “unenviable task” of trying to address the slowest economic expansion in a decade while tackling the fastest price gains among the largest emerging markets. Local newspapers have reported scuffles at vegetable markets in eastern India and food inflation is set to dominate state elections being held through Dec. 4. High onion prices were cited for the Bharatiya Janata Party losing a 1998 vote in New Delhi.

“We do not see any scope for rate cuts,” said Leif Eskesen, HSBC Holdings Plc’s chief economist for India and theAssociation of Southeast Asian Nations. “Underlying inflation pressures are rising. The RBI has to maintain a hawkish stance and stand ready to tighten further, if needed.”

Food articles, including fruits, vegetables, milk and eggs, accounted for 47 percent of the increase in the benchmark inflation gauge, the wholesale price index. The measure rose 7 percent in October from a year earlier, compared with 6.46 percent the month before and exceeding the 6.95 percent median estimate of 40 economists surveyed by Bloomberg.

Currency Impact

Food prices climbed 18.2 percent in October from a year earlier, down from 18.4 percent in September, the Nov. 14 report showed. Fuel and power increased 10.3 percent. So-called core inflation accelerated as a weaker currency impacted manufacturers, according to HSBC.

India’s rupee is the third-worst performing Asian currency versus the U.S. dollar this year, down 12 percent. It climbed 0.3 percent to 62.2475 at 9:52 a.m. in Mumbai today.

Less than half of India’s fields have irrigation, so food prices are beholden to the vagaries of the monsoon. India’s agricultural development has slowed in recent decades and a lack of irrigation and infrastructure exacerbates weather-induced supply shocks, according to the World Bank.

Downward Pressure?

Rajan, who has increased benchmark rates twice in two months, said Nov. 13 that food inflation is “worryingly high” and that the RBI is awaiting the impact of the harvest before deciding its next move. Weak growth, a good harvest after a strong monsoon season and the raising of the benchmark rate to 7.75 percent from 7.25 percent will “provide a disinflationary impetus over time,” he said.

That may not be enough to mollify the likes of 48-year-old Mohammad Mohit, whose family lives 1,250 kilometers from New Delhi, where he plies his trade as a plumber. Onions feature prominently in his Muslim diet, he said.

“They’re difficult to buy now,” said Mohit, who has two children out of 11 still living because he was unable to afford timely medical care for the others. “A few days ago I had a fight with the vendor from whom I have been buying vegetables for last few years after he refused to sell me 250 grams of onion. Why is the government there at all if it can’t control price rises?”

People looted vegetables from about 200 vendors in Malda district in West Bengal state, angered by price of potatoes, The Statesman newspaper reported on Nov. 13.

Rain Damage

Prices for onions have already come down in the growing areas of Maharashtra state, India’s largest producer, according to C.B. Holkar, a director at the National Agricultural Cooperative Marketing Federation of India Ltd. High prices have encouraged farmers to plant more onions for their late summer crop after heavy rains in September cut production by as much as 50 percent of the usual 850,000 metric-ton output in the state, he said.

Higher food prices eat into consumers’ disposable incomes which in turn causes a reduction in household savings and harms bank liquidity, Shubhada Rao, chief economist at Yes Bank Ltd. said in a Nov. 14 interview. National household savings fell from 11.6 percent of gross domestic product in 2007-2008 financial year to 8 percent in 2011-2012, the RBI said in its Financial Stability Report in June.

“The monsoon rains will ease some pressure off food prices but fundamental change is going to require agricultural transformation,” said Dharmakirti Joshi, chief economist in Mumbai at Crisil Ltd., the Indian unit of Standard & Poor’s. “The average food inflation is close to 10 percent compared to 5 percent a couple of years back. The volatility is pretty high and we need to bring it down by increasing supplies.”

Junk Threat

India’s credit rating may be cut to junk next year unless national elections due by May lead to a government capable of reviving growth, S&P said in a Nov. 7 statement. The yield on the 7.16 percent government notes due May 2023 climbed about 39 basis points this month to 9.02 percent.

The cost of insuring the debt of State Bank of India, a proxy for the sovereign, against default for five years climbed to 332 basis points on Nov. 15, the highest since Sept. 12. That’s almost five times the 68 basis points for China and more than the 190 basis points it costs to insure Brazil’s debt.

“Structural weaknesses and seasonal volatility are being combined and that’s why we’re seeing gains in double digits,” Rao said. The RBI “will be closely monitoring food and fuel inflation over the next couple of months when food prices are broadly expected to decrease. If that doesn’t happen then the RBI would be forced to raise rates at a faster pace.” ( Source Bloomberg)