22 july 2000

rbi puts the brake on rupee slide
mumbai: as foreign investors exiting the stock markets began converting their rupees into dollars, thus taking the rupee to a record low, the reserve bank of india stepped in fast to stem the slide. the rbi raised its key interest rate by one percentage point to 8 per cent and tightened liquidity, by raising banks’ cash reserve ratio by 50 basis points to 8.5 per cent — to be carried out in two stages, on july 29 and august 12. the measure is likely to mop up rs 3,800 crore from the banking system.

as the rupee hit its weakest intra-day level of 45.075 per dollar, the rbi raised its bank rate, at which it refinances banks, by one percentage point while simultaneously halving the banks’ refinance limits. many bankers felt that the central bank had overreacted to developments on the forex front and they were surprised by the sudden monetary tightening and hoped they were temporary.

currency traders said the rupee will recover sharply to 44.50 levels when the market opens on monday. foreign exchange reserves are down $1.67 billion from all time highs of $38.34 billion in mid-april.

21 july 2000

general insurance revamp put off
mumbai: the restructuring exercise of general insurance corporation of india may be delayed with consultants m p chitale & co favouring a merger of gic subsidiaries with the parent, if the government rationalises manpower.

according to the report, the merger would help gic in introducing new centrally administered products such as managed healthcare and savings linked products, while providing economies of scale in key areas.

however, the issue of staff rationalisation would be politically difficult, considering that the finance minister has made a statement, while speaking on the irda bill on december ‘99 in parliament that none of the employees of gic or lic would be retrenched.

the chitale committee has studied the two alternatives available, which included merging all insurance businesses of gic and its four subsidiaries, and de-linking the four subsidiaries as separate companies.