Goldman Sachs Upgrades India in Market Weight

World's biggest private equity, hedge funds and investment firm The Goldman Sachs Group today upgraded India to "market weight" from "underweight". The decision comes after observing India’s macro cycle, lower oil prices, lower valuation, and policy reform.

In a statement Goldman said, "The latest move by the RBI to raise the repo rate by 50 basis points was a clear sign in our view that the central bank is vigilant in bringing down inflation expectations. Despite the near-term weakness, policy tightening was a necessary step to reigning in inflation expectations and will ultimately serve as a net positive for the Indian equity market on a medium to longer term horizon.”

The RBI recently raised the tax rates and eventually it had increased the rates for 11 times within one year in expectation to nearing the end of its tightening cycle.

RBI Increased Interest Rate, Industry Fears Slowdown

Yesterday's “unexpected” 50-basis point rise in repo rates by the Reserve Bank of India makes the industry across all spectrums nervous. Market analysts fear slowdown in growth, especially in sectors like Real Estate, automobiles and infrastructure and the companies from these sectors are heavily criticizing RBI’s step on increasing interest rate at this point of time.

While real estate companies fear that rise in the cost of funds would affect their projects, auto manufacturers are panic as sales of vehicles would heavily fall down. Infrastructure companies scared of falling shortage of funds and implications on new projects and as it is surely home loan rates are bound to go up. Industry is complained that already interest rates are in the range of 11.5-12% for long-term financing and there was no need for RBI to increase the rate at this moment.

Chambers of Commerce severely criticized RBI on rise of interest rate,  “It’s clear RBI had decided to sacrifice growth to tame inflation, with 11 consecutive interest rate increases in the past 15 months.”

Industry Pundits are now saying that RBI’s hike of interest rates may not help it to curb inflation rather it would create backfire, with growth slowing considerably. This hike may not deliver the results as expected but surely growth will be hit significantly due to the high-interest system. Already growth momentum is under severe pressure due to inflation and this step may raise more difficulties to even achieve projected growth rate of 8% for 2011-12.

Balance Enquiry at ATMs Will Not Be A Free Service From 1st July

The  Reserve Bank of India has taken a tough decision regarding balance enquiry through ATMs; it will be implemented from 1st July, 2011. From 1st July, customers will have to pay for all non-finance transactions like 'balance enquiry' at ATMs other than the home bank of the customer.

A source from Reserve Bank of India said that they have taken this decision to discipline the customers. There has been unreasonably excessive use of non-bank ATMs by customers for checking account balance, mini statements and other purposes leading to wastage of paper. According to RBI reports,  28% of the total ATM transactions in April 2011 occurring on the National Payments Switch related to balance enquiry and mini statement. Implementaion of the current decision can also reduce paper wastage.

As a result of this decision, apart from the transactions beyond the five free transactions to every customer at non-bank ATMs, all non-finance transactions would also have to be paid for from now.

RBI has also taken a decision in favour of the customers: from now on, all customer complaints regarding faulty ATM transactions will have to be addressed by the appropriate bank within 7 days of the complaint. Otherwise for every additional day, the customer will receive a compensation of Rs100 from the bank.

Most people have welcomed RBI’s decision to penalise banks for laxity in resolving ATM-related complaints; but the reactions to the decision regarding balance enquiry etc through ATMs is mixed..

Some have welcomed the decision saying that this can help reduce wastage of paper and protect the environment in the long run.

Some, of course, are quite angry with the decision. They doubt the intentions of the government and are distinctly unhappy and think it would inconvenience people. They feel that  the slogan of world class service will be meaningless if the government reverts to traditional ways of banking service. They demand an explanation from the RBI - though the Reserve Bank has announced a reasoned decision.

Some corporate executives suggest that the RBI should withdraw this decision and introduce an option to check balance on screen without the facility to print it out.