Category: Press Releases

The expression ‘Banking System’ or ‘Banks’ means the banks and any other financial institution referred to in sub-clauses (i) to (vi) of clause (d) of the explanation below Section 42(1) of the Reserve Bank of India Act, 1934.

No. of Scheduled Commercial Banks as on Current Fortnight:133

Ajit Prasad
Director   

Press Release : 2020-2021/1177

The Reserve Bank of India issued Directions under Section 35 A read with Section 56 of the Banking Regulation Act, 1949 to Bidar Mahila Urban Co-operative Bank Ltd., Bidar, Karnataka, vide Directive DCBS.CO.BSD-III.No.D-8/12.23.212/2018-19 dated February 21, 2019, as modified from time to time, last being vide Directive DOR.CO.AID.NO.D-16/12.23.212/2020-21, dated August 25, 2020 in terms of which, the Directions were extended up to February 28, 2021.

2. The Reserve Bank of India is satisfied that in the public interest, it is necessary to extend the period of operation of Directive DCBS.CO.BSD-III.No.D-8/12.23.212/2018-19 dated February 21, 2019 issued to Bidar Mahila Urban Co-operative Bank Ltd., Bidar, Karnataka as modified from time to time for a further period of six months. Accordingly, the Reserve Bank of India, in exercise of powers vested in it under sub-section (1) of Section 35 A read with Section 56 of the Banking Regulation Act, 1949, hereby directs that the Directive DCBS.CO.BSD-III.No.D-8/12.23.212/2018-19 dated February 21, 2019 issued to Bidar Mahila Urban Co-operative Bank Ltd., as modified from time to time, the validity of which was extended up to February 28, 2021, shall continue to apply to the bank for a further period of six months from March 01, 2021 to August 31, 2021, subject to review.

3. Other terms and conditions of the Directives under reference shall remain unchanged.

(Yogesh Dayal)     
Chief General Manager

Press Release: 2020-2021/1174

The Reserve Bank of India today released the February 2021 issue of its monthly Bulletin. The Bulletin includes Monetary Policy Statement, 2020-21: Resolution of the Monetary Policy Committee (MPC) February 3-5, 2021, one Speech, four Articles and Current Statistics.

The four articles are: I. State of the Economy; II. Sectoral Deployment of Bank Credit in India: Recent Developments; III. Assessing the Future Path of Monetary Policy from Overnight Indexed Swap (OIS) Rates; IV. Do Markets Know More? India’s Banking Sector through the Lens of PBR.

I. State of the Economy

Highlights

• In India, economic activity is gaining steam as COVID-19 incidence recedes and the ongoing vaccine rollout releases pent-up optimism.

• All engines of aggregate demand are starting to fire; only private investment is missing in action and the time is apposite for it to come alive.

• Broader measures of liquidity reflect easing of monetary and financial conditions in the system.

II. Sectoral Deployment of Bank Credit in India: Recent Developments

The analysis of sectoral credit data provides insights into the flow of credit to various important sectors of the economy. This article analyses the developments in sectoral deployment of bank credit during the period preceding the COVID-19 pandemic and compares them with developments during the COVID-19 period, i.e., during April-November 2020-21.

Highlights

• Bank credit growth, which witnessed a slowdown in 2019-20, experienced a further setback in 2020-21 in the wake of COVID-19-induced lockdown but with the gradual resumption of economic activity, credit to agriculture and services sectors has registered accelerated growth in the recent period.

• Public Sector Banks (PSBs) have been primarily responsible for an accelerated growth in credit to agriculture and services sectors in the recent period.

• Even in the industrial sector, credit growth to medium industries has accelerated indicating positive impact of several measures taken by the Government and the Reserve Bank.

• Empirical estimates indicate that non-food credit is sensitive to interest rate changes with a lag, with industry and services sectors exhibiting greater sensitivity.

III. Assessing the Future Path of Monetary Policy from Overnight Indexed Swap (OIS) Rates

The use of the overnight indexed swap (OIS) rate as a measure of monetary policy expectation is gaining popularity in the literature. This article, by adopting the methodology of Lloyd (2018), empirically tests whether onshore OIS trades in India of different tenors (ranging from 1 month to 10 years) for the period from August 03, 1999 to May 31, 2019 are efficient measures of market participants’ expectation of short-term interest rates.

Highlights:

• The article computes ex post “excess return” as the difference between the OIS fixed rate and the floating overnight reference rate.

• The excess returns of the OIS trades of tenors of up to one year were low ranging between 2 basis points (bps) and 20 bps indicating that these OIS rates were, on average, a fair indication of the direction of future course of monetary policy.

• Specifically, the OIS rates of tenors 1, 9 and 12 months appear to more accurately measure the expectations of future short-term interest rates with the excess returns of these tenors, on average, being not significantly different from zero.

• Based on the findings of the study, the OIS rates in India are found to be credible predictors of the direction of monetary policy, if not the exact timing of policy changes.

IV. Do Markets Know More? India’s Banking Sector through the Lens of PBR

What is an appropriate measure of bank value? This article argues that price-to-book ratio (PBR) of banks may be considered as an alternative measure of bank value to better understand their health and stability in the Indian context.

Highlights:

• While there are several indicators such as capital adequacy ratios, Z-scores, and profitability, none of them comprehensively capture the viability of the underlying business models of banks. Moreover, such standard indicators often change due to shifts in the regulatory environment without necessarily reflecting a fundamental change in the health of banks.

• Through credit intermediation, banks generate valuable intangible assets, such as private information on borrowers’ worth and develop long-term banking relationships with them. Since banking business is subject to stringent entry requirements and regulations, incumbent banks have greater access to market profits. These factors contribute to a bank’s franchise value, which can be captured by its price-to-book ratio.

• The article finds that variations in PBR have linkages with financial and economic cycles. PBR also shares a close correlation with indicators relating to profitability and viability of banks. As it is available on a high-frequency basis, unlike the balance sheet data, PBR of banks promises to be a useful metric for policy purposes.

(Yogesh Dayal)      
Chief General Manager

Press Release: 2020-2021/1172

The Reserve Bank of India (RBI) has imposed, by an order dated February 25, 2021, a monetary penalty of ₹2 crore on Bank of Maharashtra (the bank) for contravention of / non-compliance with certain provisions of the directions contained in Reserve Bank of India (Frauds classification and reporting by commercial banks and select FIs) directions 2016 and the circulars on Concurrent Audit System in Commercial Banks – Revision of RBI’s Guidelines, Disclosure of customer complaints and unreconciled balances on account of ATM transactions, and Micro, Small and Medium Enterprises (MSME) Sector – Restructuring of Advances. This penalty has been imposed in exercise of powers vested in RBI under the provisions of section 47 A (1) (c) read with sections 46 (4) (i) and 51 (1) of the Banking Regulation Act, 1949 (the Act).

This action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers.

Background

The statutory inspection of the bank with reference to its financial position as on March 31, 2018 and March 31, 2019 and the Risk Assessment Reports (RARs) pertaining thereto revealed, inter alia, non-compliance with the aforesaid directions issued by RBI. In furtherance to the same, notices were issued to the bank advising it to show cause as to why penalty should not be imposed for failure to comply with the directions issued by RBI. After considering the bank’s replies to the notices, oral submissions made in the personal hearing and examination of additional submissions made by it, RBI came to the conclusion that the aforesaid charges of non-compliance with RBI directions were substantiated and warranted imposition of monetary penalty.

(Yogesh Dayal)     
Chief General Manager

Press Release: 2020-2021/1171

In terms of GoI notification F.No.4(4)-B(W&M)/2020 and RBI circular IDMD.CDD.No.730/14.04.050/2020-21, dated October 09, 2020, the Sovereign Gold Bond Scheme 2020-21 – Series XII will be open for subscription for the period from March 01, 2021 to March 05, 2021. The nominal value of the bond based on the simple average closing price [published by the India Bullion and Jewellers Association Ltd (IBJA)] for gold of 999 purity of the last three business days of the week preceding the subscription period, i.e. February 24 – 26, 2021 works out to ₹4,662/- (Rupees Four thousand six hundred and sixty-two only) per gram of gold.

Government of India, in consultation with the Reserve Bank of India, has decided to offer a discount of ₹50/- per gram less than the nominal value to those investors applying online and the payment against the application is made through digital mode. For such investors, the issue price of Gold Bond will be ₹4,612/- (Rupees Four thousand six hundred and twelve only) per gram of gold.

(Yogesh Dayal)     
Chief General Manager

Press Release: 2020-2021/1170