RBI Monthly Bulletin - October 2010

The Reserve Bank of India Bulletin is issued monthly by the Department of Economic Policy and Research. The issue includes recent speeches by management, articles on topical issues, various press releases, a list of regulatory and other measures, and foreign exchange developments. It also includes detailed statistics and list of publications.

The Reserve Bank’s October Monthly Bulletin (www.rbi.org.in/scripts/BS_ViewBulletin.aspx) carries six articles. Of particular note in this month’s issue, is the trend of India’s external debt, with tables and charts of various external debt indicators.  Also in this issue is the results of the Reserve Bank’s inflation expectations survey of households in June 2010, which is done every quarter. The survey provides useful information on near-term inflationary pressures and, along with other economic indicators, serves as an indicator of future inflation. The Bulletin also includes an article on the revisions to the wholesale price index for more adequately capturing the current structure of the economy.

A brief description of each article is presented below.

1. Developments in India’s Balance of Payments during the First Quarter (April-June) 2010-11

This article provides details on developments in India’s balance of payments during April-June 2010 (Q1).

Main Findings

The higher trade deficit combined with the lower invisibles surplus widened the current account deficit during Q1. The capital account surplus increased significantly, over the corresponding quarter of last year, on account of short-term trade credit, external commercial borrowings, external assistance and banking capital. With capital account surplus being higher than the current account deficit, the overall balance was in surplus at US$ 3.7 billion.

2. India’s External Debt: Trend, Policy Changes and Cross-country Comparisons

India’s external debt, as of end-June 2010, was at US$ 273.1 billion. The article also provides tables and charts on various details on external debt such as External Debt Outstanding, External Debt by Component, Currency Composition, Instrument-wise classification, Short-Term Debt by Original Maturity and Residual Maturity and cross country comparisons of external debt of select developing countries etc.

Main Findings

The long-term debt at US$ 215.2 billion and short-term debt at US$ 57.8 billion accounted for 78.8 per cent and 21.2 per cent, respectively, of the total external debt. The article highlights India’s external debt as of end-June 2010, provides a cross-country comparison of external debt among select developing countries, reviews recent policy measures by the Reserve Bank and Government of India for effective management of external debt, and presents some observations on India’s external debt stock.

3. Inflation Expectations Survey Of Households; June 2010 (Round 20)

The Bank has been conducting inflation expectations survey of households (IESH) on a quarterly basis since 2005. The present article is based on the survey round 20 (quarter ended June 2010).  Presently the survey is limited to households from four major metropolitan cities and eight other major cities. The major metropolitan cities, are represented by 500 households each while the eight other cities are represented by 250 households each.

Main Findings

This article presents the survey findings.. It gives respondents’ perceptions of current inflation as well inflation expectations for 3 months ahead (July-September 2010) and one year ahead (July 10-June 11).The survey findings indicate that households expect inflation to rise further by 30 and 80 basis points during next quarter (11.4 per cent) and next year (11.9 per cent) respectively from the expected current rate of 11.10 per cent.

Household’s expectations of general price rise is mainly influenced by movements in food grains prices. High price-rise is expected in food, housing prices and cost of service. On category–wise inflation expectations, housewives and daily-wage workers are comparatively more consistent in the inflation expectations.

4. New Series of Wholesale Price Index Numbers (Base 2004-05=100)

The series on Index Numbers of Wholesale Prices with base 1993-94=100 had been in use since April 2000.A Working Group was established for the revision of the WPI series (base 1993-94=100) on December 26, 2003 under the Chairmanship of Prof. Abhijit Sen, Member, Planning Commission. Based on the recommendations of the Working Group, the Ministry came out with the new series of Wholesale Price Index with the base year 2004-05=100 from August 2010, on September 14, 2010. 

Main Findings

At the aggregate level, the price trend as well as inflation of new series (base 2004-05=100) is similar to those of the old series (base 1993-94). However, there are a number of significant changes in the new series in terms of weighting diagram, coverage, and price collection mechanism. There is a reduction in the weight of ‘Primary Articles’by 1.9 percentage points. On the other hand, weights of ‘Fuel and Power’ and ‘Manufactured Products’ have gone up by 0.7 percentage points and 1.2 percentage points, respectively. In terms of coverage, the number of commodities in the new series has gone up significantly to 676, as compared to 435 commodities of the earlier series. Further, in order to ensure a better representation of price, the number of price quotations has also increased significantly to 5482 from 1918 price quotations of the old series. The latest WPI revision to the base year 2004-05=100 is a welcome development and will be better representative of overall inflation of the economy.  

5. International Trade in Banking Services: 2008-09

The survey on International Trade in Banking Services for the reference period 2008-09 was conducted by the Reserve Bank of India in continuation of earlier surveys for 2007-08 and 2006-07. The article based on the survey results is being published in October 2010 issue of RBI bulletin. The main findings of the survey are:

Main Findings

• In all 134 branches and 99 subsidiaries of 14 Indian banks operating abroad and 289 branches of 29 foreign banks operating in India had responded to the survey.

• The amount accrued to India by Indian banks’ operations in various countries was at `4,255 crore in 2008-09. Out of ` 4,255 crore, ` 3,012 crore (70.8 per cent) fee income was generated by 134 branches of Indian banks operating outside India and remaining ` 1,243 crore (29.2 per cent) belongs to 99 subsidiaries of Indian banks operating abroad.

• Fee income generated by the Indian banks’ branches operating abroad increased by 2.1 per cent from ` 2,950 crore in 2007-08 to ` 3,012 crore in 2008-09, of which 93.0 per cent of fee income was by rendering banking services like credit related services, trade finance related services, derivative, stock, securities, foreign exchange trading services and payment & money transmission services.

• In contrast to a small growth of 2.1 per cent by Indian banks branches operating outside India, a sharp growth of 140.1 per cent has been observed in the fee income generated by rendering trade in banking services by subsidiaries of Indian banks operating abroad in 2008-09.

• Foreign banks operating in India by rendering banking services was significantly higher at ` 10,548 crore than that of Indian banks’ branches operating abroad which generated only ` 3,012 crore of fee income.

• Indian banks generated major share of fee income by rendering banking services to non-residents while foreign banks generated major share of fee from residents. Foreign banks operating in India generated 93.3 per cent of fee income by rendering banking services to residents during 2008-09.

• Bahrain, UK, USA, Hong Kong, UAE, Belgium, and Japan  were the major countries having witnessed not only the significant share in trade in banking services by the Indian banks but also had seen significant growth in trade in banking services in 2008-09 over 2007-08. 

• The amount accrued to India was more than the amount accrued to foreign countries like Bahrain, Bangladesh, Belgium, Japan, Singapore, Sri Lanka, UAE etc., during 2008-09, whereas the amount accrued to other countries was higher than the amount accrued to India in case of USA, UK, Hong Kong, Germany, Oman, France etc.

6. International Banking Statistics of India – December 31, 2009

International Banking Statistics (IBS) defined as banks’ on-balance sheet liabilities and assets vis-à-vis non-residents in any currency or unit of account along with such liabilities and assets vis-à-vis residents in foreign currencies or units of account comprises Locational Banking Statistics (LBS) and Consolidated Banking Statistics (CBS). The LBS are designed to provide comprehensive and consistent quarterly data on international banking business conducted inside the Bank for International Settlements (BIS) reporting area, while CBS provides data on international/foreign claims as per residual maturity and sector of borrower along with the exposures by country of immediate borrower and on the reallocation of claims (i.e. risk transfers) to the country of ultimate risk.

Main Findings

Locational Banking Statistics - International Liabilities

• The international liabilities (in Rupees) of banks in India, at end-December 2009 increased by 13.7 per cent over the position a year ago.

• The investment in the ADRs/GDRs and equities of the banking sector by non-residents registered a substantial growth over the position a year ago.

• For the quarter ended December 2009, currency composition of the international liabilities revealed that the Indian Rupee continued to be the dominant currency.

• The share of the international liabilities towards the non-bank sector was higher at 75.9 per cent compared to 69.3 per cent a year ago.

Locational Banking Statistics - International Assets

• At end-December 2009, the international assets (in Rupees) of banks in India declined marginally by 0.4 per cent over the position a year ago.

• The substantial decline in the nostro balances of the banks (19.7 per cent) over the previous year resulted in the overall decline in the international assets of the banks during the period.

• For the quarter, the share of the non-bank sector in the international assets increased to 67.8 per cent from 62.9 per cent for the previous year.

• At end-December 2009, almost all (98.4 per cent) assets denominated in Indian Rupee were towards non-bank sector.

Consolidated Banking Statistics

• The annual growth in consolidated international claims (in Rupees) of banks based on country of immediate risk, at end-December 2009, was 17.9 per cent compared to 24.6 per cent registered a year ago.

• Consolidated international claims of Indian banks on immediate risk basis, at end-December 2009, continued to be of short-term nature (less than one year) and accounted for 61.2 per cent of total claims compared to 60.7 per cent a year ago.

Alpana Killawala
Chief General Manager

Press Release : 2010-2011/514