Airtel, the country’s largest mobile service provides has recently received a go ahead from the Reserve Bank of India that would allow it to collect a maximum of Rs 5000 from its customers. This can be converted into virtual money and saved on the handset and used by the user at outlets that have a tie up with Airtel.

Over the next couple of months several other leading telecom operators are also slated to receive semi closed wallet license.

With over 650 million mobile phone users present in the country, all telecom operates are vying to offer various financial services that can be used to make payments across various sectors. Such services are already prevalent in countries like South Korea, Japan, certain markets of Europe and parts of China.

RBI in its annual monetary policy had announced earlier this year that it was looking to use mobile phones as a great medium for making banking facilities accessible even in remote areas of the country, provided the cellular operators and the telecom companies co operate to make this initiative a success.

In a statement Bharti Airtel said “Semi-closed wallets are prepaid payment instruments that are redeemable at a group of clearly-identified merchant locations/ establishments which contract specifically with the issuer to accept the payment instrument. These instruments do not permit cash withdrawal or redemption by the holder.”

M-money or mobile money payment has already been introduced by Bhutan Telecom which is a one stop shop for making payments.

No timeframe ahs been indicated by the company for launch of these services.

“Currently we are evaluating various options that this license provides to find out how best we can create a value proposition for Airtel customers. It is imperative to design a safe & convenient deployment before we can take to the market,” its statement added.

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“I think it (the rate hike) is in the right direction because now the corridor has been narrowed down and still inflationary pressure is there in the system,” Finance Minister Pranab Mukherjee told media persons in New Delhi today. “I think the adjustment of repo and reverse repo will help to mop up additional liquidity, which is putting pressure on the system,” he added.

Montek Singh Ahluwalia, deputy chairman of the Planning Commission said that the rate hike will not impact foreign portfolio inflows into the country.

The latest rate hike is expected to result in an increase in cost of funds for banks. This will ultimately make loans more expensive, thereby reducing consumption. Chief economic advisor Kaushik Basu said that the banks may increase deposit rates, but the liquidity adjustment facility (LAF) corridor signals them to lower the gap between loans and deposit rates. He added that the RBI move is not to dampen growth prospects and future hikes cannot be ruled out.

The RBI move is specifically meant to tame inflation, though the inflation has displayed a tendency to mellow. The central bank has pointed out that inflation has reached a plateau, but is likely to remain at unacceptably high levels for some more months. While the overall inflation came down in the last two months, food inflation is climbing up once again.

The RBI move aided in ending the stock market’s dream run this week. Sensex closed 0.43% lower at 19,417.

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However this rate increase is not a major concern for most auto makers. The Chief Financial Officer of Tata Motors, C Ramakrishnan has commented that his small increase in the rates will mostly be absorbed by the customers. HS Goindi, president marketing, TVS Motor has also commented, sharing the optimism of C Ramakrishanan that “Even if banks increase their interest rates in the months ahead, sales growth is unlikely to be affected”.

The automobile sales in India have been on the rise this financial year backed by the economic growth that has helped maintain the demand. Another factor that has helped the sales figures look high is the low sales figures of the previous year. 1.24 million Vehicles were sold in the month of July which is 32% higher than what it was last year. Vaishali Jajoo, analyst at Angel Broking has commented “Right now, the economy has started to pick up and demand is buoyant for the automobile sector, “She has also agreed that the demand may not decrease sharply after the hike in the interest rates. She also added “It seems there won’t be any big impact if there is a rate hike of around 25 basis points”.

The Indian economy witnessed a growth of 8.8% when compared to last year’s growth of 6.02% in the first quarter of the fiscal year. Robust manufacturing and services output have contributed to the higher growth.

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The latest growth figures reiterates the fact that Asia’s third-largest economy did not lose momentum during the period, despite the slow pace of global recovery and concerns of another round of economic downturn. The country also had to deal with the near double-digit inflation, which demanded strong fiscal measures.

The Reserve Bank of India was in a dilemma earlier whether to go all out in containing the runaway inflation without harming the amazing run of the economy. The central bank has stated time and again that containing inflation is being giving precedence to other policy objectives and followed it up by hiking interest rates four times in the last four months. The fact that economy is sound and steady gives RBI ample space to maneuver and focus on inflation-control fiscal tightening measures.

The consistency in economic growth is mostly due to the buoyancy in the domestic consumer market. This is thoroughly reflected in the automobile sales, which rose by 38% in July, forcing car manufacturers to run their factories to the optimum capacity.

The manufacturing sector witnessed a robust growth of 12.4% y-o-y. This growth is substantial when compared to the growth percentage of 3.4% for the same period last year. The agriculture sector expanded by a healthy 2.8% during the quarter. The trend is expected to continue on good monsoon forecast.

The sturdy growth may prompt RBI to go in for another rate hike during its quarterly policy review scheduled on September 16.

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The country’s leading lenders, State Bank of India, ICICI Bank and HDFC Bank are witnessing a steady climb in demand for loan over the past few months. Another positive phenomenon seen is the drop in the number of loan defaulters, resulting in improvement in the quality of assets. With the economy predicted to grow beyond the government forecast of 8.5% in the current fiscal, there is a definite surge in confidence level all around.

The intermittent rate hikes by the Reserve Bank of India to combat the spiraling inflation has largely left this feel-good atmosphere untouched. The imminent RBI policy review scheduled for July 27 may also see another marginal rate hike, without any impact on the loan demand.

One of the reasons attributed to this is the presence of ample liquidity in the system. The rate hikes are too small to have any effect on the system. Moreover, the amazing growth of the economy is opening up lucrative avenues for the banking sector. The first quarter also witnessed the unbelievable competition among telecom providers in securing the 3G spectrum and their subsequent clamber to cough up adequate money to pay the spectrum fees to the government.

The superb performance of the manufacturing sector in the last few months has led to a substantial reduction in bad loans and defaulters. The first quarter of the current fiscal saw a drop of 30 basis points in the 10-year benchmark bond yield, which is beneficial from bank’s perspective.

The annual bank credit stands now at 21.7%, which is a tremendous improvement from 9.7% last October.

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