History of Indian Currency

Money as a means of payment consists of coins, paper money and withdrawable bank deposits. Today, credit cards and electronic cash form an important component of the payment system. For a common person though, money simply means currency and coins. This is so because in India, the payment system, especially for retail transactions still revolves around currency and coins. There is very little, however, that the common person knows about currency and coins he handles on a daily basis.
Here is an attempt to answer some of the Frequently Asked Questions on Indian Currency.
Some Basics
What is the Indian currency called?
The Indian currency is called the Indian Rupee (INR) and the coins are called paise. One Rupee consists of 100 paise.
What are the present denominations of bank notes in India?
At present, notes in India are issued in the denomination of Rs.5, Rs.10, Rs.20, Rs.50, Rs.100, Rs.500 and Rs.1000. These notes are called bank notes as they are issued by the Reserve Bank of India (Reserve Bank). The printing of notes in the denominations of Re.1 and Rs.2 has been discontinued as these denominations have been coinised. However, such notes issued earlier are still in circulation. The printing of notes in the denomination of Rs.5 had also been discontinued; however, it has been decided to reintroduce these notes so as to meet the gap between the demand and supply of coins in this denomination.
What are the present available denominations of coins in India?
Coins in India are available in denominations of 10 paise, 20 paise, 25 paise, 50 paise, one rupee, two rupees and five rupees. Coins up to 50 paise are called 'small coins' and coins of Rupee one and above are called 'Rupee Coins'.
Can bank notes and coins be issued only in these denominations?
Not necessarily. The Reserve Bank can also issue notes in the denominations of one thousand rupees, five thousand rupees and ten thousand rupees, or any other denomination that the Central Government may specify. There cannot, though, be notes in denominations higher than ten thousand rupees in terms of the current provisions of the Reserve Bank of India Act, 1934. Coins can be issued up to the denomination of Rs.1000.
Currency Management
What is the role of the Reserve Bank in currency management?
The Reserve Bank manages currency in India. The Government, on the advice of the Reserve Bank, decides on the various denominations. The Reserve Bank also co-ordinates with the Government in the designing of bank notes, including the security features. The Reserve Bank estimates the quantity of notes that are likely to be needed denomination-wise and places the indent with the various presses through the Government of India. The notes received from the presses are issued and a reserve stock maintained. Notes received from banks and currency chests are examined. Notes fit for circulation are reissued and the others (soiled and mutilated) are destroyed so as to maintain the quality of notes in circulation. The Reserve Bank derives its role in currency management on the basis of the Reserve Bank of India Act, 1934.
What is the role of Government of India?
The responsibility for coinage vests with Government of India on the basis of the Coinage Act, 1906 as amended from time to time. The designing and minting of coins in various denominations is also attended to by the Government of India.
Who decides on the volume and value of bank notes to be printed and on what basis?
The Reserve Bank decides upon the volume and value of bank notes to be printed. The quantum of bank notes that needs to be printed broadly depends on the annual increase in bank notes required for circulation purposes, replacement of soiled notes and reserve requirements.
Who decides on the quantity of coins to be minted?
The Government of India decides upon the quantity of coins to be minted.
How does the Reserve Bank estimate the demand for bank notes?
The Reserve Bank estimates the demand for bank notes on the basis of the growth rate of the economy, the replacement demand and reserve requirements by using statistical models.
How does the Reserve Bank reach the currency to people?
The Reserve Bank manages the currency operations through its offices located at Ahmedabad, Bangalore, Bhopal, Bhubaneshwar, Belapur(Navi Mumbai), Kolkata, Chandigarh, Chennai, Guwahati, Hyderabad, Jaipur, Kanpur, Lucknow, Mumbai (Fort), Nagpur, New Delhi, Patna and Thiruvananthapuram. These offices receive fresh notes from the note presses. Similarly, the Reserve Bank offices located at Kolkata, Hyderabad, Mumbai and New Delhi initially receive the coins from the mints. These offices then send them to the other offices of the Reserve Bank. The notes and rupee coins are stocked at the currency chests and small coins at the small coin depots. The bank branches receive the bank notes and coins from the currency chests and small coin depots for further distribution among the public.
What is a currency chest?
To facilitate the distribution of notes and rupee coins, the Reserve Bank has authorised selected branches of banks to establish currency chests. These are actually storehouses where bank notes and rupee coins are stocked on behalf of the Reserve Bank. At present, there are over 4422 currency chests. The currency chest branches are expected to distribute notes and rupee coins to other bank branches in their area of operation.
What is a small coin depot?
Some bank branches are also authorised to establish small coin depots to stock small coins. There are 3784 small coin depots spread throughout the country. The small coin depots also distribute small coins to other bank branches in their area of operation.
What happens when the notes and coins return from circulation?
Notes and coins returned from circulation are deposited at the offices of the Reserve Bank. The Reserve Bank then separates the notes that are fit for reissue and those which are not fit for reissue. The notes which are fit for reissue are sent back in circulation and those which are unfit for reissue are destroyed after processingshredded. The same is the case with coins. The coins withdrawn are sent to the Mints for melting.
From where can the general public obtain bank notes and coins?
Bank notes and coins can be obtained at any of the offices of the Reserve Bank and at all branches of banks maintaining currency chests and small coin depots.
Current Issues
Why are the coins and bank notes in short supply?
This is not entirely correct. It is true that till recently the demand for currency was more than their supply. The primary reason for this is that the Indian society is still predominantly cash-driven. However, at present there are no supply constraints so far as bank notes are concerned. As regards coins, Government of India are taking various steps, including importing rupee coins. The impression of coins being in short supply is also enhanced probably due to people’s preference for notes.
Is there a way to reduce dependence on cash?
Yes, once instruments such as, cheques, credit and debit cards, electronic funds transfer gain popularity, the demand for currency is expected to go down.
Meanwhile, are some steps being taken to increase the supply of bank notes and coins?
Yes, several steps have been taken to augment the supply of bank notes and coins. Some of these are:

• The existing note printing presses and the mints owned by the Government are being modernised.
• Two new currency printing presses with the state-of-the-art technology have been set up under the aegis of the Bharatiya Reserve Bank Note Mudran Ltd., a wholly owned subsidiary of the Reserve Bank.
• To bridge the demand-supply gap, the Government had, as a one-time measure, even imported bank notes.
• The production capacity of the four India Government Mints are being augmented.
• Government of India has also been importing rupee coins to supplement the supply of coins from the four mints. Till date 2 billion rupee coins have been imported.

Why are Re1, Rs.2 and Rs.5 notes not being printed?
Volume-wise, the share of such small denomination notes in the total notes in circulation was as high as 57 per cent but constituted only 7 per cent in terms of value. The average life of these notes was found to be around a year. The cost of printing and servicing these notes was, thus, not commensurate with their life. Printing of these notes was, therefore, discontinued. These denominations were, therefore, coinised. However, it has been decided that notes in the denomination of Rs.5 be re-introduced so as to meet the gap between the demand and supply of coins in this denomination.
Soiled and Mutilated Notes
What are soiled and mutilated notes?
Soiled notes are notes, which have become dirty and limp due to excessive use. Mutilated notes are notes, which are torn, disfigured, burnt, washed, eaten by white ants, etc. A double numbered note cut into two pieces but on which both the numbers are intact is now being treated as soiled note.
Can such notes be exchanged for value?
Yes. Soiled notes can be tendered at all bank branches for and exchange obtained.
How much value would one get in exchange of soiled or mutilated notes?
Full value is payable against soiled notes. Payment of exchange value of mutilated notes is governed by the Reserve Bank of India (Note Refund) Rules, 1975. These Rules have been framed under Section 28 of the Reserve Bank of India Act, 1934. The public can get value for these notes as laid down in the Rules, after adjudication. Currently, provisions exist for paying either full, half or no value as far as notes in the denomination for Rs.10 and above are concerned; as regards Re.1, Rs.2 & Rs.5, a tenderer can get either full or no value depending upon the condition of the note.
What types of notes are not eligible for payment under the Note Refund Rules?
The following notes are not payable under the Note Refund Rules.
A note which is

• less than half the area of the full note
• devoid of the major portion of the number, i.e., the prefix and three digits or four digits of the number in notes up to and inclusive of Rs.5; in respect of notes of Rs.10 and above, where this inadequacy is present at both the numbering panels.
• cancelled by any office of the Reserve Bank or against which the value has already been paid
• found to be forged
• deliberately cut, mutilated or tampered
• carrying extrinsic words or visible representation intended to convey or capable of conveying any message of a political character.

What if a note is found to be non-payable?
Non-payable notes are retained by the receiving banks and sent to the Reserve Bank where they are destroyed.
Where are soiled/mutilated notes accepted?
All banks are authorised to accept soiled notes across their counters and pay the exchange value. They are expected to offer this service even to non-customers. All public sector bank branches and currency chest branches of private sector banks are authorised to adjudicate and pay value in respect of mutilated notes, in terms of the Reserve Bank of India (Note Refund) Rules, 1975. The RBI has also authorised all commercial bank branches to treat certain notes in ‘two pieces’ as soiled notes and pay exchange value.
Features of Contemporary Bank Notes
What are the general features of bank notes currently in circulation?
Rs.10, Rs.20, Rs.50 and Rs.100 notes issued earlier and which are still in circulation contain the Ashoka Pillar watermark and Ashoka Pillar effigy. The Rs.500 notes issued earlier i.e. since 1987 bear the Ashoka Pillar watermark and the Mahatma Gandhi portrait. The Reserve Bank is now issuing bank notes in Mahatma Gandhi series. This means that the notes contain Mahatma Gandhi watermark as well as Mahatma Gandhi's portrait. The Rs.5 notes re-introduced in August 2001 also bear the Ashoka Pillar watermark and Ashoka Pillar effigy. All these notes issued by the Bank are legal tender.
Why was the change brought about?
The central banks the world over bring in some change in the design of their bank notes. This is primarily to make counterfeiting difficult. India also follows the same policy.
Are there any special features introduced in the notes of Mahatma Gandhi series?
The new Mahatma Gandhi series of notes contain several special features vis-à-vis the notes issued earlier. These are:
i) Security thread: Rs.10, Rs.20 and Rs.50 notes contain a readable but fully embedded security windowed security thread. Rs.100, Rs.500 and Rs.1000 notes contain a readable windowed security thread. This thread is partially exposed and partially embedded. When held against light, this thread can be seen as one continuous line. Other than on Rs.1000 notes, this thread contains the words 'Bharat' in the devnagri script and 'RBI' appearing alternately. The security thread of the Rs.1000 note contains the inscription 'Bharat' in the devnagri script, '1000' and 'RBI'. Notes issued earlier have a plain, non-readable fully embedded security thread.
ii) Latent Image: A vertical band behind on the right side of the Mahatma Gandhi’s portrait, which contains a latent image, showing the denominational value 20, 50, 100, 500 or 1000 as the case may be. The value can be seen only when the note is held on the palm and light allowed to fall on it at 45° ; otherwise this feature appears only as a vertical band.
iii) Microletterings: This feature appears between the vertical band and Mahatma Gandhi portrait. It contains the word ‘RBI’ in Rs.10. Notes of Rs.20 and above also contain the denominational value of the notes. This feature can be seen better under a magnifying glass.
iv) Identification mark: A special intaglio feature has been introduced on the left of the watermark window on all notes except Rs.10/- note. This feature is in different shapes for various denominations (Rs.20-Vertical Rectangle, Rs.50-Square, Rs.100-Triangle, Rs.500-Circle, Rs.1000-Diamond) and helps the visually impaired to identify the denomination.
v) Intaglio Printing: The portrait of Mahatma Gandhi, Reserve Bank seal, guarantee and promise clause, Ashoka Pillar Emblem on the left, RBI Governor's signature are printed in intaglio i.e. in raised prints in Rs.20, Rs.50, Rs.100, Rs.500 and Rs.1000 notes.
vi) Fluorescence: The number panels of the notes are printed in fluorescent ink. The notes also have optical fibres. Both can be seen when the notes are exposed to ultra-violet lamp.
vii) Optically Variable Ink: The numeral 500 & 1000 on the Rs.500 [revised colour scheme of mild yellow, mauve and brown] and Rs.1000 notes are printed in Optically Variable Ink viz., a colour-shifting ink. The colour of these numerals appear green when the notes are held flat but would change to blue when the notes are held at an angle.
Forgeries
How does one differentiate between a genuine note and a forged note?
The notes on which the above features are not available can be suspected as forged notes and examined minutely.
What are the legal provisions relating to printing and circulation of forged notes?
Printing and circulation of forged notes are offences under Sections 489A to 489E of the Indian Penal Code and are punishable in the courts of law by fine or imprisonment or both, depending on the offence.
Remember: An aware public is the best safeguard against forgeries
This is an electronic document. Kindly refer to the printed brochure for the definitive version.

Currency Issues by Republic India

Throughout history, the right to Coinage and Currency and issues of sovereignty have been curiously conjoined, emotionally if not rationally; these issues stimulate debate even today.
The transition of currency management from colonial to independent India was a reasonably smooth affair. Midnight, August 15, 1947 heralded Indian independence from colonial rule. The Republic, however, was established on 26th January, 1950. During the interregnum, the Reserve Bank continued to issue the extant notes.
Government of India brought out the new design Re 1 note in 1949.

Government of India - Rupee One
Symbols for independent India had to be chosen. At the outset it was felt that the King's portrait be replaced by a portrait of Mahatma Gandhi. Designs were prepared to that effect. In the final analysis, the consensus moved to the choice of the Lion Capital at Sarnath in lieu of the Gandhi Portrait. The new design of notes were largely along earlier lines.

Rupees Ten - King's Portrait

Rupees Ten - Ashoka Pillar
In 1953, Hindi was displayed prominently on the new notes. The debate regarding the Hindi plural of Rupaya was settled in favour of Rupiye. High denomination notes (Rs 1,000, Rs. 5,000, Rs. 10,000) were reintroduced in 1954.

Rupees One Thousand - Tanjore Temple

Rupees Five Thousand - Gateway of India

Rupees Ten Thousand - Lion Capital, Ashoka Pillar
The lean period of the early sixties led to considerations of economy and the sizes of notes were reduced in 1967. In 1969 a commemorative design series in honour of the birth centenary celebrations of Mahatma Gandhi was issued depicting a seated Gandhi with the Sevagram Ashram as the backdrop.

Rupees One Hundred - Commemorative Design
Cost benefit considerations prompted the Bank to introduce Rs. 20 denomination notes in 1972 and Rs. 50 in 1975.

Rupees Twenty

Rupees Fifty
High denomination notes were once again demonetised in 1978 for the same reasons as the 1946 demonetisation. The 1980s saw a completely new set of notes issued. The motifs on these notes marked a departure form the earlier motifs. The emphasis lay on symbols of Science & Technology (Aryabhatta on the Rs 2 note), Progress (the Oil Rig on Re 1 and Farm Mechanisation on Rs 5) and a change in orientation to Indian Art forms on the Rs 20 and the Rs 10 notes. (Konark Wheel, Peacock).
Management of Currency had to cope with the rising demands of a growing economy, together with a fall in purchasing power. The Rupee 500 note was introduced in October 1987 with the portrait of Mahatma Gandhi. The water mark continued to be the Lion Capital, Ashoka Pillar.

Rupees Five Hundred
Mahatma Gandhi Series
With the advancement of reprographic techniques, traditional security features were deemed inadequate. It was necessary to introduce new features and a new 'Mahatma Gandhi Series' was introduced in 1996. A changed watermark, windowed security thread, latent image and intaglio features for the visually handicapped are amongst the new features.

Rupees Ten : Size 137 x 63 mm

Rupees Fifty : Size 147 x 73 mm

Rupees One Hundred : Size 157 x 73 mm

Rupees Five Hundred : Size 167 x 73 mm

Rupees One Thousand : Size 177 x 73 mm

Banknotes in Mahatma Gandhi Series - Security Features The Reserve Bank has the sole authority to issue bank notes in India. Reserve Bank, like other central banks the world over, changes the design of banknotes from time to time. The Reserve Bank has introduced banknotes in the Mahatma Gandhi Series since 1996 and has so far issued notes in the denominations of Rs.5, Rs.10, Rs.20, Rs.50, Rs.100, Rs.500 and Rs.1000 in this series. These notes contain distinct easily recognizable security features to facilitate the detection of genuine notes vis-à-vis forgeries. Security Features:  Watermark  Security Thread  Latent Image  Microlettering  Intaglio  Identification Mark  Fluorescence  Optically Variable Ink  See through Register

	Security Features on Indian Banknotes

	Watermark : The Mahatma Gandhi Series of banknotes contain the Mahatma Gandhi watermark with a light and shade effect and multi-directional lines in the watermark window.

Security thread : Rs.1000 notes introduced in October 2000 contain a readable, windowed security thread alternately visible on the obverse with the inscriptions ‘Bharat’ (in Hindi), ‘1000’ and ‘RBI’, but totally embedded on the reverse. The Rs.500 and Rs.100 notes have a security thread with similar visible features and inscription ‘Bharat’ (in Hindi), and ‘RBI’. When held against the light, the security thread on Rs.1000, Rs.500 and Rs.100 can be seen as one continuous line. The Rs.5, Rs.10, Rs.20 and Rs.50 notes contain a readable, fully embedded windowed security thread with the inscription ‘Bharat’ (in Hindi), and ‘RBI’. The security thread appears to the left of the Mahatma's portrait. Notes issued prior to the introduction of the Mahatma Gandhi Series have a plain, non-readable fully embedded security thread. Latent Image : On the obverse side of Rs.1000, Rs.500, Rs.100, Rs.50 and Rs.20 notes, a vertical band on the right side of the Mahatma Gandhi’s portrait contains a latent image showing the respective denominational value in numeral. The latent image is visible only when the note is held horizontally at eye level. Microlettering : This feature appears between the vertical band and Mahatma Gandhi portrait. It contains the word ‘RBI’ in Rs.5 and Rs.10. The notes of Rs.20 and above also contain the denominational value of the notes in microletters. This feature can be seen better under a magnifying glass. Intaglio Printing : The portrait of Mahatma Gandhi, the Reserve Bank seal, guarantee and promise clause, Ashoka Pillar Emblem on the left, RBI Governor's signature are printed in intaglio i.e. in raised prints, which  can be felt by touch, in Rs.20, Rs.50, Rs.100, Rs.500 and Rs.1000 notes. Identification mark : A special feature in intaglio has been introduced on the left of the watermark window on all notes except Rs.10/- note. This feature is in different shapes for various denominations (Rs. 20-Vertical Rectangle, Rs.50-Square, Rs.100-Triangle, Rs.500-Circle, Rs.1000-Diamond) and helps the visually impaired to identify the denomination. Fluorescence : Number panels of the notes are printed in fluorescent ink. The notes also have optical fibres. Both can be seen when the notes are exposed to ultra-violet lamp as shown below. Coinage history of Republic India The Decimal Series The move towards decimalisation was afoot for over a century. However, it was in September, 1955 that the Indian Coinage Act was amended for the country to adopt a metric system for coinage. The Act came into force with effect from 1st April, 1957. The rupee remained unchanged in value and nomenclature. It, however, was now divided into 100 'Paisa' instead of 16 Annas or 64 Pice. For public recognition, the new decimal Paisa was termed 'Naya Paisa' till 1st June, 1964 when the term 'Naya' was dropped. Naya Paisa Series 1957-1964   Denomination Metal Weight Shape Size Coin Rupee One Nickel 10 gms Circular 28 mm Fifty Naye Paise Nickel 5 gms Circular 24 mm Twenty Five Naye Paise Nickel 2.5 gms Circular 19 mm Ten Naye Paise Cupro-Nickel 5 gms Eight Scalloped 23 mm (across scallops) Five Naye Paise Cupro-Nickel 4 gms Square 22 mm (across corners) Two Naye Paise Cupro-Nickel 3 gms Eight Scalloped 18 mm (across scallops) One Naya Paisa Bronze 1.5 gms Circular 16 mm With commodity prices rising in the sixties, small denomination coins which were made of bronze, nickel-brass, cupro-nickel, and Aluminium-Bronze were gradually minted in Aluminium. This change commenced with the introduction of the new hexagonal 3 paise coin. A twenty paise coin was introduced in 1968 but did not gain much popularity.  Aluminium Series 1964 onwards Denomination Metal Weight Shape Size Coin One Paisa Aluminium-Magnesium 0.75 gms Square 17 mm (Daigonal) Two Paise Aluminium-Magnesium 1 gm Scalloped 20 mm (across scallops) Three Paise Aluminium-Magnesium 1.25 gms Hexagonal 21 mm (Diagonal) Five Paise Aluminium-Magnesium 1.5 gms Square 22 mm (Diagonal) Ten Paise Aluminium-Magnesium 2.3 gms Scalloped 26 mm (across scallops) Twenty Paise Aluminium-Magnesium 2.2 gms Hexagonal 26 mm (diagonal) 24.5 mm (across flats) Over a period of time, cost benefit considerations led to the gradual discontinuance of 1, 2 and 3 paise coins in the seventies; Stainless steel coinage of 10, 25 and 50 paise, was introduced in 1988 and of one rupee in 1992. The very considerable costs of managing note issues of Re 1, Rs 2, and Rs 5 led to the gradual coinisation of these denominations in the 1990s. Contemporary Coins Denomination Metal Weight Diameter Shape Cupro-Nickel 9.00 gms 23 mm Circular Cupro-Nickel 6.00 gms 26 mm Eleven Sided Ferratic Stainless Steel 4.85 gms 25 mm Circular Ferratic Stainless Steel 3.79 gms 22 mm Circular Ferratic Stainless Steel 2.83 gms 19 mm Circular Ferratic Stainless Steel 2.00 gms 16 mm Circular Minting & Issue The Government of India has the sole right to mint coins. The responsibility for coinage vests with the Government of India in terms of the Coinage Act, 1906 as amended from time to time. The designing and minting of coins in various denominations is also the responsibility of the Government of India. Coins are minted at the four India Government Mints at Mumbai, Alipore(Kolkata), Saifabad(Hyderabad), Cherlapally (Hyderabad) and NOIDA (UP). The coins are issued for circulation only through the Reserve Bank in terms of the RBI Act. Denominations Coins in India are presently being issued in denominations of 10 paise, 20 paise, 25 paise, 50 paise, one rupee, two rupees and five rupees. Coins upto 50 paise are called 'small coins' and coins of Rupee one and above are called 'Rupee Coins'. Coins can be issued up to the denomination of Rs.1000 as per the Coinage Act, 1906. Distribution Coins are received from the Mints and issued into circulation through its Regional Issue offices/sub-offices of the Reserve Bank and a wide network of currency chests and coin depots maintained by banks and Government treasuries spread across the country. The RBI Issue Offices/sub-offices are located at Ahmedabad, Bangalore, Belapur (Navi Mumbai), Bhopal, Bhubaneshwar, Chandigarh, Chennai, Guwahati, Hyderabad, Jammu, Jaipur, Kanpur, Kolkata, Lucknow, Mumbai, Nagpur, New Delhi, Patna and Thiruvananthapuram. These offices issue coins to the public directly through their counters and also send coin remittances to the currency chests and small coin depots. There are 4422 currency chest branches and 3784 small coin depots spread throughout the country. The currency chests and small coin depots distribute coins to the public, customers and other bank branches in their area of operation. The members of the public can approach the RBI offices or the above agencies for requirement of coins. Measures to improve the supply of coins The various Mints in the country have been modernised and upgraded to enhance their production capacities. Government has in the recent past, imported coins to augment the indigenous production. Notes in denomination of Rs.5 have been reintroduced to supplement the supply of coins. New initiatives for distribution Coin Dispensing Machines have been installed at select Regional Offices of the Reserve Bank on pilot basis. Dedicated Single-window counters have been opened in several of the Reserve Bank's offices for issuing coins of different denominations packed in pouches. Mobile counters are being organised by the Reserve Bank in commercial and other important areas of the town where soiled notes can be exchanged for coins.

RBI releases Mid Quarter Monetary Policy Review

Monetary Measures

On the basis of the current macroeconomic assessment, it has been decided to:

• keep the cash reserve ratio (CRR) unchanged at 6 per cent; and
• keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 8.5 per cent.

Consequently, the reverse repo rate under the LAF will remain unchanged at 7.5 per cent and the marginal standing facility (MSF) rate at 9.5 per cent.

Introduction

Since the Reserve Bank’s Second Quarter Review (SQR) of October 25, 2011, the global economic outlook has worsened significantly. The recent European Union (EU) summit agreement did not assuage negative market sentiments, thereby increasing the likelihood of persistent financial turbulence as well as a recession in Europe. Both factors pose threats to emerging market economies (EMEs), including India. Significantly, despite these developments, crude oil prices remain elevated.

On the domestic front, growth is clearly decelerating. This reflects the combined impact of several factors: the uncertain global environment, the cumulative impact of past monetary policy tightening and domestic policy uncertainties.

Both inflation and inflation expectations are currently above the comfort level of the Reserve Bank. However, reassuringly, inflationary pressures are expected to abate in the coming months despite high crude oil prices and rupee depreciation. The growth deceleration is contributing to a decline in inflation momentum, which is also being helped by softening food inflation.

Global Economy

The global economic situation continues to be fragile with no credible solution as yet to the immediate  euro area sovereign debt problem. At the EU summit on December 8-9, the European leaders agreed on a new fiscal compact, involving stronger coordination of economic policies to strengthen fiscal discipline. While the agreement is necessary for medium and long-term sustainability of the euro area, its ability to resolve short-term funding pressures was questioned by markets.  Q3 euro area growth, at 0.8 per cent, was anaemic and 2012 growth is now expected to be weaker than earlier projected.  Reflecting these projections, the European Central Bank (ECB) cut its policy rate twice in the last two months, and also implemented some non-standard measures. By contrast, growth in the US in Q3 of 2011 was better than in Q2, although still substantially below trend.

Growth in EMEs is also moderating on account of sluggish growth in advanced economies and the impact of monetary tightening to contain inflation. In view of the slowing down of their economies, Brazil, Indonesia, Israel and Thailand cut their policy rates, while China cut its reserve requirements. EME currencies have also come under varying degrees of downward pressure as a result of global risk aversion and financial stress emanating from the euro area.

Domestic economy

Growth

GDP growth moderated to 6.9 per cent in Q2 of 2011-12 from 7.7 per cent in Q1 and 8.8 per cent in the corresponding quarter a year ago. The deceleration in economic activity in Q2 was mainly on account of a sharp moderation in industrial growth. On the expenditure side, investment showed a significant  slowdown. Overall, during the first half (April-September) of 2011-12, GDP growth slowed down to 7.3 per cent from 8.6 per cent last year.

Industrial performance has further deteriorated as reflected in the decline of the index of industrial production (IIP) by 5.1 per cent, y-o-y, in October 2011. This was mainly due to contraction in manufacturing and mining activities. The contraction was particularly sharp in capital goods with a y-o-y decline of 25.5 per cent, reinforcing the investment decline story emerging from the GDP numbers.

Other indicators also suggest a similar tendency, though by no means as dramatic as the IIP. The HSBC purchasing managers' index (PMI) for manufacturing suggested further moderation in growth in November 2011. However, PMI-services index recovered in November from contractionary levels in the preceding two months. Corporate margins in Q2 of 2011-12 moderated significantly as compared with their levels in Q1. The decline in margins was largely on account of higher input and interest costs. Pricing power is evidently declining.

On the food front, the progress of sowing under major rabi crops so far has been satisfactory, with area sown under foodgrains and pulses so far being broadly comparable with that of last year.

Inflation

On a y-o-y basis, headline WPI inflation moderated to 9.1 per cent in November from 9.7 per cent in October, driven largely by decline in  primary food articles inflation. Fuel group inflation went up marginally. Notably, non-food manufactured products inflation remains elevated, actually increasing to 7.9 per cent in November from 7.6 per cent in October, reflecting rising input costs. The new combined (rural and urban) consumer price index (base: 2010=100) rose further to 114.2 in October from 113.1 in September. Inflation in terms of other consumer price indices was in the range of 9.4 to 9.7 per cent in October 2011. Reassuringly, headline momentum indicators, such as the seasonally adjusted month-on-month and 3-month moving average rolling quarterly inflation rate, show continuing signs of moderation.

External sector

Merchandise exports growth decelerated sharply to an average of 13.6 per cent y-o-y in October-November from an average of 40.6 per cent in the first half of 2011-12.  However, as imports moderated less than exports, the trade deficit widened, putting pressure on the current account. This, combined with rebalancing of global portfolios by foreign institutional investors and the tendency of exporters to defer repatriating their export earnings, has led to significant pressure on the rupee.

As on December 15, 2011, the rupee had depreciated by about 17 per cent against the US dollar over its level on August 5, 2011, the day on which the US debt downgrade happened. In the face of this, several measures were taken to attract inflows. Limits on investment in government and corporate debt instruments by foreign investors were increased. The ceilings on interest rates payable on non‐resident deposits were raised. The all‐in‐cost ceiling for external commercial borrowings was increased. Further, a series of administrative measures that discourage speculative behaviour were also initiated. The Reserve Bank is closely monitoring the developments in the external sector and it will respond to the evolving situation as appropriate.

Fiscal  Situation

The central government’s key deficit indicators worsened during 2011-12 (April-October), primarily on account of a decline in revenue receipts and increase in expenditure, particularly subsidies. The fiscal deficit at 74.4 per cent of the budgeted estimate in the first seven months of 2011-12 was significantly higher than 42.6 per cent in the corresponding period last year (about 61.2 per cent if adjusted for more than budgeted spectrum proceeds received last year). The likely slippage in this year’s fiscal deficit has inflationary implications. 

Money, Credit and Liquidity Conditions

The y-o-y money supply (M3) growth moderated from 17.2 per cent at the beginning of the financial year to 16.3 per cent on December 2, 2011, although still higher than the projected trajectory of 15.5 per cent for the year. Y-o-y non-food credit growth at 17.5 per cent on December 02, 2011, however, was below the indicative projection of 18 per cent.

Consistent with the stance of monetary policy, liquidity conditions have remained in deficit during this fiscal year. However, the deficit increased significantly beginning the second week of November 2011. The average borrowings under the daily LAF increased to around ` 89,000 crore during November-December (up to December 15, 2011) from around  `49,000 crore during April-October 2011.  The Reserve Bank conducted open market operations (OMOs) on three occasions in November-December 2011 for an amount aggregating about ` 24,000 crore to ease liquidity conditions.

There are currently no significant signs of stress in the money market. The overnight call money rate is stable around the policy repo rate and liquidity facilities such as marginal standing facility (MSF) remain unutilised.  However, in view of the fact  that borrowings from the LAF are persistently above the Reserve Bank's comfort zone, further OMOs will be conducted as and when seen to be appropriate. 

Outlook

Global growth for 2011 and 2012 is now expected to be lower than earlier anticipated. Increased strains in financial markets on the back of growing concerns over euro area sovereign debt, limited monetary and fiscal policy manoeuvrability, high unemployment rates, weak housing markets and elevated oil prices are all contributory factors. These factors have also contributed to moderating growth in the EMEs. As a consequence of all-round slower growth, inflation has also started declining, both in advanced countries and EMEs. 

On the domestic front, agricultural prospects look promising on the back of expected record kharif output and satisfactory progress on rabi sowing. However, industrial activity is moderating, driven by deceleration in investment, which is a matter of serious concern. Overall, the growth momentum in the economy is clearly moderating. Further, considering the global and domestic macroeconomic situation, the downside risks to the Reserve Bank’s growth projection, as set out in the SQR, have increased significantly. 

Between the First Quarter Review (FQR) and the SQR, while non-oil commodity prices had declined significantly, the rupee too had depreciated sharply. Consequently, the headline inflation projection at 7 per cent for March 2012, as set out in the FQR, was retained in the SQR. With moderation in food inflation in November 2011 and expected moderation in aggregate demand and hence in non-food manufactured products inflation, the inflation projection for March 2012 is retained at 7 per cent.

The Reserve Bank will make a formal numerical assessment of its growth and inflation projections for 2011-12 in the third quarter review of January 2012.

Guidance

While inflation remains on its projected trajectory, downside risks to growth have clearly increased. The guidance given in the SQR was that, based on the projected inflation trajectory, further rate hikes might not be warranted. In view of the moderating growth momentum and higher downside risks to growth, this guidance is being reiterated. From this point on, monetary policy actions are likely to reverse the cycle, responding to the risks to growth.

However, it must be emphasised that inflation risks remain high and inflation could quickly recur as a result of both supply and demand forces. Also, the rupee remains under stress. The timing and magnitude of further actions will depend on a continuing assessment of how these factors shape up in the months ahead.

A monetary juggle

The Reserve Bank of India (RBI) is clearly in no mood to loosen its current tight monetary policy stance. An indication of it came from the Deputy Governor, Dr Subir Gokarn, who, on Saturday, made a distinction between the central bank's ‘monetary stance' (a view on the cost of money) and its ‘liquidity stance' (a view on availability of money for genuine productive use). The RBI, it would seem, is prepared to be accommodative of the latter, given tightening domestic liquidity conditions. Leaving aside for the moment the broader question of whether the RBI can, if at all, isolate the effects of its injection of liquidity into the system from the impact on the cost of funds, its latest observation has a practical dimension. The RBI's forthcoming mid-quarter policy review on December 16 is unlikely to see any reduction in its repo (lending) rate or even the cash reserve ratio (CRR) requirements for banks. The central bank's daily purchases of securities in ‘repo' auctions, besides outright open market operation (OMO) purchases since mid-November, have been somewhat successful in addressing the liquidity problem. Yields on benchmark 10-year government paper have fallen from 8.9 to below 8.7 per cent in the last 10 days.

Dr Gokarn's observations would, nevertheless, come as a disappointment to the markets that were seeing the RBI's resort to OMOs, after nearly a year, as a precursor to an easing of its monetary policy. A one per cent cut in CRR — the proportion of banks' deposits compulsorily kept with the RBI — seemed a logical next step, as it would have freed up about Rs 80,000 crore of lendable funds even without involving a lowering of the central bank's own policy rates. A CRR reduction looked all the more likely in the light of the People's Bank of China's recent move in this direction. But all these hopes have now been dashed, with Dr Gokarn saying that any action on CRR would “straddle the divide between liquidity and monetary management, which, at the current juncture, we are intent on maintaining”. This was as opposed to OMOs that do not entail a “change in any policy stance, real or perceived”.

That raises the question of how effective this conservative monetary stance would be, going forward. If the past is any guide, the outlook doesn't seem promising. Since March 2010, the RBI has hiked its repo rate 13 times by a cumulative 350 basis points. Yet, the wholesale inflation rate has remained at over 9 per cent since December 2010 and above 8 per cent from January 2010. The interest rate increases have, however, hit investment — as confirmed by the Government's own GDP data for July-September — by eating into the profits of firms and disincentivising them from augmenting productive capacity. In the process, they may have undermined the RBI's own battle with inflation.

Private Sector Lender HDFC Bank launched Premium Credit cards Exclusively for Women

Private sector lender HDFC Bank launched premium credit cards exclusively for women on 30 November 2011. HDFC expects to add 4 million credit card customers in the next two years. The bank has about six million credit card customers. Of this, 1.5 million customers are women.

The card Solitaire introduced exclusively for women has a credit limit of up to 2 lakh. The bank also launched a special card, Solitaire Premium, with a credit limit of Rs 5 lakh for women. Solitaire will provide unmatched lifestyle offers, its wellness aspects will help women take holistic care of themselves in the midst of a busy career.

Solitaire is expected to fulfil a long-standing need of women who are pursuing a successful career, travelling the world and are at the forefront of the global consumption story.

The bank, which is the biggest issuer of credit cards in the country decided to come out with new credit card products including co-branded card every quarter.

RBI approved Creation of Separate Category of Non-banking Financial Companies for MFI Sector

The Reserve Bank of India (RBI) on 2 December 2011 approved the creation of a separate category of non-banking financial companies for the microfinance institution (MFI) sector. The central bank also specified that such institutions need to have a minimum net owned fund of Rs 5 crore.

An RBI-appointed panel headed by YH Malegam had earlier recommended setting up of a special category of NBFCs operating in the micro finance sector. The panel had suggested a minimum net worth of 15 crore for an entity to qualify as an NBFC-MFI.

The RBI highlighted that the NBFC-MFIs should have a minimum net worth of Rs 5 crore. However, for those operating in the North-Eastern states, the slab was kept at Rs 2 crore.

The RBI had in its second quarter policy review in October 2011 approved of setting up of this category of specialised financial companies which would cater to low-income groups.

IRDA launched Two Online Initiatives to Safeguard the Interest of Insurance-seekers

The Insurance Regulatory and Development Authority (IRDA) announced two online initiatives to safeguard the interest of insurance-seekers. The first of the two online initiatives is the extensive guidelines pertainining to web aggregators and the second one relates to the launch of a mobile application to compare unitlinked insurance policies (ULIPS) from various companies and their premium rates.

Guidelines to web aggregators

Web aggregators are sites like policybazaar.com, i-save.com, medimanage.com and click2insure.in that provide information on insurance products from various companies. The information so collated can help insurance-seekers compare premium rates for life, health, travel and motor insurance. Most portals just generate leads and not all offer the option to purchase a product online.

However, some do facilitate an online buying process to the extent possible, usually by directing the insurance-seekers to the companies’ website. However, aggregators often sell visitors’ personal information to several insurers, resulting in customers being bombarded with sales calls from the companies or their agents. IRDA therefore directed the aggregators not to pass visitor’s information on to companies on the site’s home page.
To ensure that aggregators do no indulge in promoting products, the insurance regulator has decreed that they cannot display ratings, rankings, endorsements or bestsellers of insurance products on their websites. Similarly, they have been barred from commenting on insurers or their products.

In addition, aggregators will from here on be required to highlight links to the product comparison charts and tables for each category of products covered by them. Items to be displayed include premiums quoted by each insurer as per age and other personal details, policy and premium term, sum assured, default underwriting requirements such as medical examination, diagnostics, etc, and key features of the product chosen. The diktat also puts the onus of safeguarding and securing the entire process on the aggregators.

Launch of the mobile application

The launch of the mobile application, is intended to help insurance-seekers compare ULIPs launched after 1 September 2010. The tool, which works on Android, iPhone, Nokia and Blackberry platforms, has been termed a mobile application and can be accessed even via a personal computer.

Users can search products for comparison through three options – By company, Policy type and Keywords. Up to three products can be selected at a time for comparison, with the criteria listed being benefits offered, premium-paying term, tenure, charges and so on.

SBI, ICICI Bank lead peers in global branch network

State Bank of India and ICICI Bank appropriated to themselves the credit of running the most extensive global networks from among the country's public and private sector banks.

State Bank of India (SBI) owns the largest network of foreign offices (64) as at August-end, says the Report on Trend and Progress of Banking in India 2010-11.

Bank of Baroda followed with 60. Together, these two accounted for 51 per cent of total foreign offices of banks. SBI also undertook the largest expansion of foreign operations by opening five new offices abroad during the year under reference.

ICICI Bank (19) led the private sector banks in terms of largest foreign presence.

FOREIGN BANKS

The number of foreign banks operating here is 38 (34 a year ago). The number of branches too rose to 321 (315). Another 47 (45) banks had representative offices.

Standard Chartered had the largest network, followed by HSBC, Citibank and the Royal Bank of Scotland.

Permission was granted to National Australia Bank, Industrial and Commercial Bank of China, Rabobank International and Woori Bank to open one branch each.

Besides, Sumitomo Mitsui Banking Corporation was allowed to open a representative office.

Foreign operations of Indian banks expanded to a network of 244 offices as compared with 233 offices in the previous year.

BRIEF HISTORY OF BANKING IN INDIA

1. From the ancient times in India, an indigenous banking system has prevailed. The businessmen called Shroffs, Seths, Sahukars, Mahajans, Chettis etc. had been carrying on the business of banking since ancient times. These indigenous bankers included very small money lenders to shroffs with huge businesses, who carried on the large and specialized business even greater than the business of banks.
• The origin of western type commercial Banking in India dates back to the 18th century.
2. The story of banking starts from Bank of Hindusthan established in 1779 and it was first bank at Calcutta under European management.
• In 1786 General Bank of India was set up.
3. Since Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, it became a banking center.
• Three Presidency banks were set up under charters from the British East India Company- Bank of Calcutta, Bank of Bombay and the Bank of Madras. These worked as quasi central banks in India for many years.
• The Bank of Calcutta established in 1806 immediately became Bank of Bengal.
• In 1921 these 3 banks merged with each other and Imperial Bank of India got birth. It is today’s State Bank of India.
• The name was changed after India’s Independence in 1955. So State bank of India is the oldest Bank of India.
4. In 1839, there was a fruitless effort by Indian merchants to establish a Bank called Union Bank. It failed within a decade.
5. Next came Allahabad Bank which was established in 1865 and working even today.
• The oldest Public Sector Bank in India having branches all over India and serving the customers for the last 145 years is Allahabad Bank. Allahabad bank is also known as one of India’s Oldest Joint Stock Bank.
6. The Oldest Joint Stock bank of India was Bank of Upper India established in 1863 and failed in 1913.
7. The first Bank of India with Limited Liability to be managed by Indian Board was Oudh Commercial Bank. It was established in 1881 at Faizabad. This bank failed in 1958.
8. The first bank purely managed by Indian was Punjab National Bank, established in Lahore in 1895. The Punjab national Bank has not only survived till date but also is one of the largest banks in India.
9. However, the first Indian commercial bank which was wholly owned and managed by Indians was Central Bank of India which was established in 1911.
• Central Bank of India was dreams come true of Sir Sorabji Pochkhanawala, founder of the Bank. 
• Sir Pherozesha Mehta was the first Chairman of this Bank. 
10. Many more Indian banks were established between 1906-1911. This was the era of the Swadeshi Movement in India. Some of the banks are Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India. 
• Bank of India was the first Indian bank to open a branch outside India in London in 1946 and the first to open a branch in continental Europe at Paris in 1974. 
• The Bank was founded in September 1906 as a private entity and was nationalized in July 1969. Since the logo of this Bank is a star, its head office in Mumbai is located in Star House, Bandra East, Mumbai. 
11. There was a district in Today’s Karnataka state called South Canara under the British empire. It was bifurcated in 1859 from Canara district , thus making Dakshina Kannada and Udupi district. It was the undivided Dakshina Kannada district. It was renamed as Dakshina Kannada in 1947. Four banks started operation during the period of Swadeshi Movement and so this was known as “Cradle of Indian Banking. 
• This was the first phase of Indian banking which was a very slow in development. This era saw many ups and downs in the banking scenario of the country. 
12. The Second Phase starts from 1935 when Reserve bank of India was established. 
• Between the period of 1911-1948, there were more than 1000 banks in India, almost all small banks. The Reserve Bank of India was constituted in 1934 as an apex Bank, however without major government ownership. Government of India came up with the Banking Companies Act 1949. This act was later changed to Banking Regulation (Amendment) Act 1949. 
• The Banking Regulation (Amendment) Act of 1965 gave extensive powers to the Reserve Bank of India. The Reserve Bank of India was made the Central Banking Authority. 
13. The banking sector reforms started immediately after the independence. These reforms were basically aimed at improving the confidence level of the public as most banks were not trusted by the majority of the people. Instead, the deposits with the Postal department were considered safe.
14. The first major step was Nationalization of the Imperial Bank of India in 1955 via State Bank of India Act. 
• State Bank of India was made to act as the principal agent of RBI and handle banking transactions of the Union and State Governments. 
15. In a major process of nationalization, 7 subsidiaries of the State Bank of India were nationalized by the Indira Gandhi regime. In 1969, 14 major private commercial banks were nationalized. These 14 banks Nationalized in 1969 are as follows: 
o Central Bank of India
o Bank of Maharastra
o Dena Bank
o Punjab National Bank
o Syndicate Bank
o Canara Bank
o Indian Bank
o Indian Overseas Bank
o Bank of Baroda
o Union Bank
o Allahabad Bank
o Union Bank of India
o UCO Bank
o Bank of India.
16. The above was followed by a second phase of nationalization in 1980, when Government of India acquired the ownership of 6 more banks, thus bringing the total number of Nationalised Banks to 20. The private banks at that time were allowed to function side by side with nationalized banks and the foreign banks were allowed to work under strict regulation. 
17. After the two major phases of nationalization in India, the 80% of the banking sector came under the public sector / government ownership. 
18. Please note the following sequence of events: 
 Creation of Reserve bank of India: 1935 
 Nationalization of Reserve Bank of India : 1949 (January ) 
 Enactment of Banking Regulation Act : 1949 (March) 
 Nationalization of State Bank of India : 1955 
 Nationalization of SBI Subsidiaries : 1959 
 Nationalization of 14 major Banks : 1969 
 Creation of Credit Guarantee Corporation: 1971 
 Creation of Regional Rural Banks : 1975 
 Nationalization of 7 more banks with deposits over Rs. 200 Crore: 1980 
19. The result was outstanding. The public deposits in these banks increased by 800% , as the government ownership gave the public faith and trust. 
20. The third phase of development of banking in India started in the early 1990s when India started its economic liberalization.

Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011 Approved

The Union Cabinet of India on 13 October 2011 approved the introduction of the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011 in the winter session of Parliament.

The Bill seeks to amend the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act and Recovery of Debts due to Banks & Financial Institutions (RDBF) Act so as to strengthen the regulatory and institutional framework related to recovery of debts due to banks and financial institutions through the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011.

The proposed amendments would enable banks to improve their operational efficiency, deploy more funds for credit disbursement to retail investors, home loan borrowers, etc. without fearing for recovery, thus bringing about equity. Further, mandatory registration of subsisting security interest (equitable mortgages) would promote innovation in credit information.

The suggested amendments would strengthen the ability of banks to recover debts due from the borrowers, enhance the ability of the banks to extend credit to both corporate and retail borrowers, reduce the cost of funds for banks and their customers and reduce the level of non-performing assets.

The banks and financial institutions (FIs) were facing numerous problems in recovery of defaulted loans on account of delays in disposal of recovery proceedings. The Government, therefore, enacted the RDBF Act in 1993 and SARFAESI Act in 2002 for the purpose of expeditious recovery of non-performing assets (NPAs) of the banks and FIs. Although these two acts have helped in reducing the NPAs, banks have sent certain suggestions for further strengthening of the secured creditor rights.

Global Ratings firm Moody’s downgraded SBI’s Credit Rating

On 4 October 2011 the credit rating of the State Bank of India was downgraded by the Global ratings firm Moody’s. The ratings agency took SBI's grading to D+ from C-.

SBI had a shortage of capital to cushion bad loans or contingencies and thus started weakening asset quality. High interest rates in a slowing economy results in shorthand for loans that do not yield interest. This led Moody’s to adopt a negative view on SBI’s creditworthiness. As a result, the borrowing companies suffer. Rating downgrades usually are caution signals to bond investors. The Banking customers do not have encounter risk.

After the downgrade, SBI shares slipped 4% to Rs 1,787 on the Bombay Stock Exchange and the Sensex  dropped 1.77%  or 302 points to 15,685.

As of June 2011, the Capital Adequacy Ratio (CAR) of the SBI stood at 11.6 %. CAR is a measure of the back-up money a bank has to withstand loan uncertainties.

Tier-I capital stood at 7.6 % which was a little below the 8 % desired by the government. Tier-I capital broadly refers to shareholder equity.

Finance Ministry revised the Budget Estimate of Direct Tax Collection Upwards to Rs 5.85 lakh crore

The finance ministry in October 2011 revised the Budget estimate of direct tax collection upwards by Rs 53000 crore to Rs 5.85 lakh crore. The higher target marked an increase of 31% over last year’s collection of Rs 4.46 lakh crore. The Budget estimate of direct tax collection was revised upwards to bridge the shortfall that might occur due to reduction in customs duty on crude oil to offset price rise.

The growth in net direct tax collection in the April-September 2011 period was only 7% or Rs 1.94 lakh crore. But the overall gross collection rose by 23% to Rs 2.57 lakh crore. The collection was 36% of the budget estimates of Rs 5.32 lakh crore for 2011-12.

CBDT officials opined that the government will have to move fast on increasing the strength of the department. There are 1,200 posts of additional commissioners, considered the backbone of tax collection, of which there are at least 600 vacancies.

 CBDT created several new investigative departments, including a Directorate of Criminal Investigation with the mandate of inducting a marine and armed unit to tackle white-collar crimes and deal with tax evaders even on foreign shores.

CBDT’s request to enhance the manpower was personally vetted by finance minister Pranab Mukherjee and the file was moved to DoPT for final approval.

Government’s Fiscal Deficit surged to Rs 2.73 lakh crore in April-August 2011 Period

According to Comptroller General of Accounts data released on 30 September, the government’s fiscal deficit surged nearly two-fold to Rs 2.73 lakh crore during the first five months (April-August) of the current fiscal 2011-12 due to low revenue realisation. Deficit was Rs 1.5 lakh crore in April-August period of 2010.

The higher deficit in the April-August, 2011 was attributed to slowdown in net revenue collection following higher refunds and moderation in economic growth rate. The government decided to increase 2011’s borrowing target by an additional Rs 53,000 crore anticipating slower tax collections and lower disinvestment proceeds.

The deficit in the April-August period was 66.3 per cent of the target originally estimated at the beginning of the 2011-12 fiscal for the whole year.

Prime Minister's Economic Advisory Council (PMEAC) chairman C Rangarajan  pointed out that the target to cut fiscal deficit to at 4. per cent of the GDP for the current financial year would be missed. The government's decision to borrow Rs 52872 crore more from the market, over and above Rs 4.17 lakh crore estimated earlier for the current year, put pressure on the deficit number.

The net tax revenue receipts for April-August period stood at Rs 1.44 lakh crore, which is 21.8 per cent of the budget estimates. On the other hand, total expenditure was at 37.5 per cent of the target at Rs 4.72 lakh crore.

During April-August 2011, the direct tax mop-up was at Rs 96738 crore, which is 3.3 per cent less than the corresponding period in 2010 on account of huge refunds of Rs 57622 crore. The advance tax paid by corporates witnessed a marginal growth of 13 per cent to Rs 68000 crore in the second quarter of 2011-12, compared with the corresponding period in 2010. However, the indirect tax collection in the first five months stood at Rs 1.40 lakh crore, an increase of 26 per cent, over the corresponding period in 2010.

Finance Minister Pranab Mukherjee had lowered the fiscal deficit target to Rs 412,817 crore or 4.6 per cent of the gross domestic product from 4.7 per cent achieved during 2010-11.

India Post Signed MOU with National Stock Exchange for Financial Awareness

India post signed a Memorandum of Understanding (MOU) with National Stock Exchange (NSE) on 26 September 2011 for deploying LCD TV screens in selected post offices across the country. The MOU was signed by Alka Jha, General Manager (BP), India Post and T. Vanket Rao, Vice President of National Stock Exchange. This MOU is aimed at creating financial awareness among the public. To begin with LCD TV screens will be deployed in 50 post offices across the country.  

These LCD TV screens shall be utilized for disseminating financial awareness and awareness on various postal products and services for the common public visiting post offices. This step will bring the financial market place closer to the people considering the importance and footfall at post offices.

Besides publicizing products available in post offices, India Post will use the facility to train the postal staff. Showcasing information about market will help people develop live skills about finances and people will be able to manage their finances better.

Bombay Stock Exchange (BSE) received SEBI’s Approval to set up SME Exchange

Asia’s oldest bourse Bombay Stock Exchange (BSE) on 28 September 2011 got an approval to set up an exchange for small and medium enterprises (SMEs) from the capital markets regulator Securities and Exchange Board of India (SEBI).

The permission from SEBI is likely to boost  BSE's efforts in offering multiple asset classes to Indian investors. The permission to set up SME will enable BSE to contribute towards the governmental agenda of greater financial inclusion and allowing promising enterprises of the future to access retail capital.

The new exchange set up by BSE will allow small unlisted domestic companies, with less than Rs 10 crore capital base, to raise money from the primary market.

BSE was committed to deliver the best products, services, and asset classes to all our stakeholders and look forward to the success of the SME segment. While the government has taken several measures to ease access to credit, giving them easier access to equity is the next step in that process. The new exchange will be a facilitator in raising funds for SMEs.

BSE SME Exchange conducted several seminars for educating the SMEs on the benefits of listing and the preparations required for listing on the BSE SME Platform across the country. BSE SME tied up with channel partners, who include various institutions and associations engaged in the development of SMEs. More seminars are lined up in this year.

BSE SME planned for sectoral seminars for auto ancillaries, infrastructure, pharmaceuticals, manufacturing, agro-based industries, suppliers to OEMS and the like.

National Stock Exchange (NSE), India’s largest exchange, is currently awaiting a formal Sebi approval to start a similar SME exchange. In May 2011 Sebi had given an in-principle approval to both BSE and NSE to set up SME exchanges.

Sebi had on 2 June 2011 allowed exchanges to introduce programmes to enhance liquidity of thinly-traded securities in their equity derivatives segments. NSE currently controls almost the entire equity derivatives market, with a turnover of about Rs 29.63 trillion in August. BSE’s comparable turnover was Rs 34.09 crore.