Bank of England Refraining From More Quantitative Easing

IndusView Chairman Bundeep Singh Rangar comments on the new Archbishop of Canterbury Justin Welby known for his criticism of banking practices, outgoing Chinese President Hu Jintao's goal to double per capita income by 2020, the Bank of England refraining from more quantitative easing, investigation of offshore accounts held by HSBC customers, Taiwan's Foxconn plans to manufacture on US soil and McDonald's first sales drop in nearly a decade.

Reserve Bank of India Maintains Status Quo on Interest Rates

The Reserve Bank of India (RBI) today kept its interest rates unchanged while cutting its growth forecast but increasing its inflation outlook as the nation’s economic conditions remain sluggish.

While the decision to leave the policy repo rate unchanged at 8% was in line with forecasts in a recent Reuter’s poll, the RBI decided to cut the cash reserve ratio for banks by 0.25% to 4.25% in its credit policy review and indicated it may ease monetary policy further in the January-March quarter.

India’s central bank said the Survey of Professional Forecasters has lowered the country’s Gross Domestic Product (GDP) growth projection to 5.7% from 6.5% for the current fiscal year. The average wholesale price based inflation forecast is revised upwards to 7.7% from 7.3%.

“Spurring growth is back on the central bank’s agenda that had been obsessed with fighting inflation for the past two years,” said Bundeep Singh Rangar, Chairman of London-based advisory firm IndusView. “Increasing rates would have helped curb inflation but further slowed growth.”

India’s growth has been slowing, and hit a nine-year low of 5.3% in the March quarter, partly because of a global slowdown as well as weaker demand and investment activity at home. During April-May 2012 too, FDI in India declined by 59% year-on-year to $3.18 billion, reflecting the impact of slowing global economy.

“India’s strength lies in the fact that 70% of its economic activity is domestic oriented. Strengthening the domestic economy via cheaper credit will help offset the slowdown in global growth epitomized by continued troubles in the euro zone,” said Rangar.

The government has in the recent past undertaken a host of reform initiatives including the long awaited reforms allowing foreign direct investments (FDI) in multi-branded retail and aviation sectors but also financial reforms that will change the face of the insurance industry.

Last month, the RBI had kept the repo rate unchanged at 8% while industry leaders have been asking for a rate cut. It’s still well above the 6% set two years ago in Sept. 2010.

Finance Minister P Chidambaram unveiled a five-year roadmap for fiscal consolidation on Monday, emphasizing the need to control expenses and generate more revenue as the government targeted budget deficits of 5.3% of the Gross Domestic Product (GDP) this fiscal and 4.8% in the next.

Indian Government Plans FDI Increase in Insurance Industry

After introducing the long awaited reforms allowing foreign direct investments (FDI) in multi-branded retail and aviation sectors, the Indian government is now looking at financial reforms that will change the face of the insurance industry.

The government is believed to be considering a complete makeover of the country's insurance laws that would end the monopoly enjoyed by state-owned Life Insurance Corp of India, shift control of the industry to the insurance regulator, and create a legal system to deal with any failure of insurers.

Prime Minister Manmohan Singh’s government is willing to walk the talk to help foreign investors in insurance by raising the FDI stake ceiling in insurance companies to 49% from the current 26%.

“FDI is needed to stoke the simmering fire of Indian GDP growth,” said Bundeep Singh Rangar. “Reforms that were held up under the previous Finance Minister now seem to be pushed through. The insurance industry alone needs a $10 billion infusion over the next five years to make it a healthy growth sector.”

India’s growth has been slowing, and hit a nine-year low of 5.3% in the March quarter, partly because of a global slowdown as well as weaker demand and investment activity at home. During April-May 2012 too, FDI in India declined by 59% year-on-year to $3.18 billion, reflecting the impact of slowing global economy.

The Insurance (Amendment) Bill that proposes to raise the FDI limit to 49% has been pending in Parliament after it was introduced in the Rajya Sabha (Upper House) in 2008 for lack of political consensus.

The probability of Parliament voting the Bill into law, however, remains uncertain given the strong opposition from both former ally Trinamool Congreess and the Left parties.

A commission headed by former Supreme Court judge B N Srikrishna studied possible reforms in the financial sector has suggested on Monday a merger of multiple financial regulatory agencies into one overarching authority that would have oversight of the capital market, insurance sector, pension funds and commodities futures trading—a proposal that, if accepted, would help consolidate the scattered regulation of financial products.

“A Super Financial Regulator could help end some confusion over policies and streamline conflicting agendas, “ said Bundeep Singh Rangar, Chairman of London-based advisory firm IndusView. “A bigger bureaucratic beast, however, would be a bad outcome. The government has been assailed by two years of corruption allegations; less bureaucracy is needed to bring more transparency”.

The commission was set up in March 2011 with the mandate of rewriting and harmonizing decades-old financial sector legislation, rules and regulations. The Financial Sector Legislative Reforms Commission (FSLRC) was required to submit its findings within two years. The commission has invited feedback on the approach paper, after which it will release its full report in March 2013.

Japan-China Dispute Over Senkaku Islands

IndusView Chairman Bundeep Singh Rangar comments on the Japan-China dispute over Senkaku Islands, French PM Jean-Marc Ayrault's leeway to Greece for austerity targets, Gazprom Neft's Arctic drilling delay over safety concerns, burgeoning electricity costs of Internet servers and negative feedback on author JK Rowling's foray into non-children fiction.

The Reserve Bank of India Maintains Key Interest Rate; Drops CRR

   IndusView, Monday September 17 (London): The Reserve Bank of India (RBI) today kept interest rates unchanged, despite last-minute hopes for a reduction in the wake of policy changes announced by India’s government last Friday. It did, however, reduce the core reserve ratio requirement of Indian banks by 0.25% that’s expected to increase lending as new liquidity is ushered into the banking system.

           The RBI left its benchmark repo rate at 8% even as it cut the cash reserve ratio for banks to 4.50% from 4.75% that's could see as much as $3 billion available in new credit by banks. Wholesale price inflation rose to 7.55% in August and consumer price inflation was about 10%.

         "India’s central bank continues to use monetary policy to fight inflation even at the cost of growth,” said Bundeep Singh Rangar, Chairman of London based advisory firm IndusView. “While the diesel price increase announced by the government was a step in the right direction to cut the budget deficit, a key requirement by the RBI for it to cut rates, ironically, it also could have an inflationary effect that is the RBI’s key enemy.”

          “Inflation may rise due to the first increase in diesel prices in 14 months and a rise in the price of commodities as the U.S. steps up monetary easing,” added Rangar.

In the biggest economic policy push, more than halfway through Prime Minister Manmohan Singh’s second term, The Indian Prime Minister introduced the long awaited reforms allowing foreign direct investments (FDI) in multi-branded retail and aviation sectors on Friday. Proposals to allow overseas retailers like Wal-Mart Stores Inc. and Carrefour SA to own 51% of supermarket chains, shelved last year after alliance partners threatened to revolt, have been reinforced now.

India has also announced a 14% rise in the price of diesel, the first increase in more than one year, in an attempt to cut the country's budget deficit.

“The RBI has been reluctant to ease rates without the government doing its part to fix its budget deficit,” said Rangar. “The diesel rate hike was the minimum needed to get the RBI to act.”

  The RBI increased interest rates a staggering 13 times since March 2010 in one of the most aggressive monetary tightening by any major central bank around the world. It succeeded in bringing down inflation to about 7% from a high of 10% in Sept. 2011. Still, inflation based on the Wholesale Price Index (WPI) increased to 7.55% in August from 6.87% in July. That’s above the RBI's 5%-6% target.

  The RBI’s focus on inflation is despite slowing GDP growth that slipped to 5.3% in the fourth quarter of 2011-12, the lowest in nearly nine years, following poor performance of the manufacturing and farm sectors. As a result, GDP growth for the full year 2011-12 was down to 6.5% from 8.4% in 2010-11 with dismal predictions for 2012-13 at annual GDP growth below 6%.

The government also allowed foreign airlines to buy stakes of up to 49% in local carriers, a much-awaited policy move that provides a potential lifeline to the country's debt-laden airlines such as Kingfisher and open fresh sources of funding for the likes of SpiceJet Ltd, Go Airlines Ltd and Jet Airways Ltd.

The move had been strongly opposed by tens of thousands of small businesses and corner-shops, which fear they will be put out of business. But this latest move has already been welcomed by economists and industry, who say it will transform the way Indians shop and boost the country's flagging economy.

 According to the RBI, maintaining interest rates alone won’t suffice to reignite the investment cycle. With limited fiscal and monetary space available for direct stimulus to domestic growth, the government also needs to reduce spending by cutting subsidies and allocate resources instead to boost public capital expenditure.

 The RBI added that structural impediments impacting business confidence needed to be addressed immediately and has previously listed issues for the Manmohan Singh government to take care of such as mining and infrastructure to stimulate growth.

           Prime Minister Manmohan Singh is the only Prime Minister since India’s founding Prime Minister Jawahar Lal Nehru to return to power after a full five-year term in office. Singh’s liberal economic policies have rolled back much of Nehru’s socialist economic construct that saw dismal growth rates for nearly five decades of post-independent India.

FDI Liberalization to Boost Retail, Airlines, Banks and Property Sectors in India

       IndusView, Sunday September 16 (London): The Indian Prime Minister introduced the long awaited reforms allowing foreign direct investments (FDI) in multi-branded retail and aviation sectors on Friday.

In the biggest economic policy push, more than halfway through Prime Minister Manmohan Singh’s second term, proposals to allow overseas retailers like Wal-Mart Stores Inc. and Carrefour SA to own 51% of supermarket chains, shelved last year after alliance partners threatened to revolt, have been reinforced now.

The government will also allow foreign airlines to buy stakes of up to 49% in local carriers, a much-awaited policy move that provides a potential lifeline to the country's debt-laden airlines such as Kingfisher and open fresh sources of funding for the likes of SpiceJet Ltd, Go Airlines Ltd and Jet Airways Ltd.

          It’s a bold move after months of fighting high inflation, a sluggish economy and a threat of having its credit rating downgraded.,” said Bundeep Singh Rangar, Chairman of London-based IndusView. “It also put the ball back in the RBI’s court to do its part now to bolster India’s sputtering economic growth.”

“It could certainly help retail, airlines, bank and real estate industry sectors,” said Rangar. “More FDI will help big over-leveraged Indian retail companies like Pantaloon Retail and Future Group raise money and reduce debt. It will also help Indian banks, which are mostly public sector ones, with high exposures to Indian retailers, rescue their loans from turning into non-performing assets. And it will help commercial real estate prices stabilize and lift sentiment in the depressed realty markets of big Indian cities to which FDI in retail is currently restricted.”

India’s growth has been slowing and hit a nine-year low of 5.3% in the March quarter, partly because of a global slowdown as well as weaker demand and investment activity at home. During April-May 2012 too, FDI in India declined by 59% year-on-year to $3.18 billion, reflecting the impact of slowing global economy.

           India has announced a 14% rise in the price of diesel, the first increase in more than one year, in an attempt to cut the country's budget deficit.

          “The RBI has been reluctant to ease rates without the government doing its part to fix its budget deficit,” said Rangar. “The diesel rate hike was the minimum needed to get the RBI to act.”

On Monday, the Reserve Bank of India’s review of its monetary policy will be keenly watched for any changes to its key lending rates.

           Together with this increase in diesel prices, the decisions announced by Commerce Minister Sharma in New Delhi mark a sustained effort to ease criticism of Singh’s administration. The government has been assailed by two years of corruption allegations, while its agenda has been criticized by opposition parties and coalition allies alike.

Late last year, the cabinet had also allowed 51% Foreign Direct Investment or FDI in multi-brand retail, but suspended its plans after Ms Banerjee, whose Trinamool Congress is second largest constituent in the ruling United Progressive Alliance (UPA) and opposed to FDI, threatened to leave Singh’s Congress-led UPA.

          The move had been strongly opposed by tens of thousands of small businesses and corner-shops, which fear they will be put out of business. But this latest move has already been welcomed by economists and industry, who say it will transform the way Indians shop and boost the country's flagging economy.

            Prime Minister Manmohan Singh is the only Prime Minister since India’s founding Prime Minister Jawahar Lal Nehru to return to power after a full five-year term in office. Singh’s liberal economic policies have rolled back much of Nehru’s socialist economic construct that saw dismal growth rates for nearly five decades of post-independent India.

India GDP Data Better Than Expected for This Quarter

IndusView, Friday August 31 (London): New economic growth figures have been announced today in India showing the economy grew 5.5% in the quarter, driven by a rebound in construction and financial services, and slightly better than the 5.3% posted in the three-month period ending in March.

Other Asian economies, meanwhile, are posting lower growth rates this year. China, for instance, is projected to grow by slower 8.2% this year from 9.2% last year. Indonesia is expected to decelerate to 6.1% this year from 6.5% in 2011, while Malaysia is forecast to slow down to 4.2% from 5.1%. The forecast for South Korea is 3%, down from last year’s 3.6%.

“The GDP numbers were better than expected, which does alleviate some pressure from the Reserve Bank of India to cut interest rates at its next month’s meeting,” said Bundeep Singh Rangar, Chairman of London-based advisory firm IndusView. “Still, reviving growth is a top priority as global economic conditions remain weak and multinationals are wary of India due to policy flip flops in recent months.”

There is still a strong need for a stable policy, taxation and investment regime to attract foreign capital. The 2012-13 Budget introduced a controversial retrospective tax provision in the wake of Supreme Court judgment quashing the tax demand on Essar-Vodafone deal.

On January 2012, India's Department of Industrial Policy and Promotion, Ministry of Commerce and Industry (DIPP) revised its position on single brand retail trading. Multi-brand retailers are still prohibited from foreign direct investment into the market, even in partnership.

Amid uncertainty over global economy, Foreign Direct Investment (FDI) in India registered a growth of 34 per cent to $46.8 billion in 2011-12 against $34.8 billion in the previous fiscal. Inflation based on Wholesale Price Index (WPI) declined to 6.87% in July from 7.25% in June. It is still, however, above the RBI's 5%-6% target.

The central Reserve Bank of India has also warned the country's economic prospects are unlikely to improve in the near-term, due to high inflation, the lack of reform and the impact of poor monsoon rains on farm output.

Standard Chartered Countering Iran Transaction Allegations

IndusView Chairman Bundeep Singh Rangar comments from the London Olympic Park on Standard Chartered countering Iran transaction allegations, Iran's support of Syria's regime, Italian PM Monti under pressure as economy contracts, Baker Greggs Olympic sales boost, Team GB's best gold medal haul since 1908 and Yorkshire's Brownlee brothers winning in men's triathlon.

Iran's Support of Syria's Regime

IndusView Chairman Bundeep Singh Rangar comments again from the London Olympic Park on Standard Chartered countering Iran transaction allegations, Iran's support of Syria's regime, Italian PM Monti under pressure as economy contracts, Team GB's best gold medal haul since 1908 and Yorkshire's Brownlee brothers winning in men's triathlon.

As Offshoring Grows, Banks Grapple With Oversight

What started a decade ago as call centres staffed by young Indians faking Western accents to sell credit cards and field routine queries has grown into a core function for banks, handling work from risk and fraud management to finance and accounting.

The New York state banking regulator's accusation this week that London-based Standard Chartered (STAN.L) hid $250 billion (160 billion pounds) in transactions with Iran and did not give proper oversight to its back office operation in Chennai, India, underscores the perils of shipping sensitive work to far-flung locations.

"When you offshore, the biggest challenge is not at the offshore end but it's on the onshore end and the management of the offshore operations. And these companies are underinvested in that," said Bundeep Singh Rangar, chairman of London-based IndusView Advisors.

"If they don't put (in) enough oversight, governance procedures and practices, then you will have a problem with the satellite centre, whether that is located onshore or offshore," said Rangar, whose firm advises foreign companies, including technology firms, on doing business in India.

Drawn by an English-speaking population and wages that can be one-fifth those in the West, more than three-quarters of global banks have a direct or third-party offshore presence in India.

Bank of America Merrill Lynch (BAC.N), Barclays (BARC.L), Goldman Sachs (GS.N), HSBC (HSBA.L), JPMorgan (JPM.N) and RBS (RBS.L) are among financial giants employing thousands in India. These wholly owned offshore operations, running around the clock, are known as "captive" centres.

Financial firms such as Citigroup (C.N), Credit Suisse (CSGN.VX) and Aviva (AV.L) are among the biggest clients of Indian IT giants such as Infosys (INFY.NS), Tata Consultancy Services (TCS.NS) and Wipro (WIPR.NS).

The New York regulator rapped Standard Chartered for "outsourcing of the entire OFAC compliance process for the New York branch to Chennai, India, with no evidence of any oversight or communication between the Chennai and the New York offices." OFAC is the U.S. Office of Foreign Assets Control.

COMPLIANCE PROCESSES SCRUTINISED

Scope International, Standard Chartered's back office outsourcing centre, employs more than 8,500 people in India.

"Over the course of the years, these captive centres have matured to an extent that they are doing a lot of high-value works as well," said Arup Roy, principal analyst in Mumbai at technology research firm Gartner.

The Standard Chartered issue, he said, would "lead to much greater level of scrutiny, and the governance processes and the risk and compliance processes would be under the lens".

Standard Chartered said it has been in talks with U.S. authorities over its Iran transactions since early 2010 and said the public accusations by New York came as a shock.

On Wednesday, it won some help from Britain's central bank governor, who said the various regulators should coordinate action and publish findings only when investigations are complete.

While shipping of jobs by global banks to low-cost locations will continue, analysts said banks would have to invest more to strengthen internal processes and controls.

"What I have seen is that a lot of these discussions happen internally or in-house because security is obviously a dominant area of concern and by virtue of that a lot of them follow the book as they see," said Mayur Sahni, a Singapore-based senior market analyst for IDC Asia/Pacific. "But they don't revise the book when the newer version comes up," he said.

BRITISH BACKLASH

Most banks are reluctant to talk about their offshore operations in India. Standard Chartered, JPMorgan, HSBC and RBS declined to comment when contacted by Reuters, while Barclays, Bank of America Merrill Lynch, and Goldman Sachs did not immediately respond to emails.

Financial services firms can cut costs by one-third or more by shifting work to in-house operations in India.

The global market for back-office offshore services was $4 billion in 2010 and will grow to $9.4 billion by 2015, according to IDC. The financial sector accounts for the biggest share.

The New York regulator's accusations come close on the heels of a backlash in Britain after customers of RBS and its Natwest unit were left locked out of their accounts for a week due to an inexperienced IT operator in Hyderabad, media reports said.

A recent U.S. Senate probe criticising anti-money laundering controls at HSBC identified deficiencies in the work done by its "offshore reviewers" in India, according to media reports.

HSBC has one of the biggest captive operations in India, with about 20,000 people spread across seven locations.

In 2006, the security of Indian back office operations came under scrutiny after a British TV channel's investigation showed that criminal networks in India traded British consumers' account details and other commercial information for profit.

In the same year, a worker at HSBC's Bangalore centre was arrested after being caught by internal security for taking funds from British bank customers.

"When you offshore, you can't sort of offshore your problems. You have got to have a proper structure in place and you have to have more centralisation of processes," said IndusView's Rangar.

"And once you do that, it really shouldn't matter as to whether you are based in Houston or Edinburgh or Chennai."