Tag: Repo

RBI, BFSI News, ET BFSI

Banking & Finance

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Mumbai, The Reserve Bank of India is reviewing its scheme of penalising banks for non-replenishment of ATMs after getting feedback from lenders, its Deputy Governor T Rabi Sankar said on Friday. In August this year, RBI had announced that it will penalise banks for failure to timely replenish currency notes in ATMs. The scheme, which is aimed at ensuring availability of sufficient cash for the public through ATMs, has come into effect from October 1, 2021.

“We have received various feedback– some positive and some raising concerns. There are issues specific to locations. We are trying to take all the feedback and have a review and see how best it can be implemented,” Sankar told reporters in a post policy call with reporters on Friday.

He said the idea behind the penalty on outages in ATMs is to ensure that cash is available in all ATMs, specially in rural and semi urban areas, all the time.

As per the scheme, cash-out of more than ten hours at any ATM in a month will attract a flat penalty of Rs 10,000 per ATM.

In case of White Label ATMs (WLAs), the penalty would be charged on the bank which is meeting the cash requirement of that particular WLA.

Replying to a query on lower interest rates affecting senior citizens due to fall in fixed deposit rates amid higher inflation, RBI Governor Shaktikanta Das said the cut in repo rate was considered absolutely necessary during the pandemic to support the economy.

“If you are not able to support the overall economy which is collapsing or is moving into a contraction zone, then there would be other major issues for all, including for senior citizens,” he told reporters.

He, however, said one should invest in small savings schemes that are currently offering much higher rates than their actual formula-based rates.

Citing an example, he said the one-year term deposit rate in small savings schemes is at least 170-180 basis points higher than the actual rate which is arrived at by the guidelines.

“In this crisis situation, we should see this (small savings scheme rates) as a fiscal support to senior citizens and middle class and small savers,” Das said. PTI HV

ANU ANU



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RBI may signal policy normalisation on Oct. 8, StanChart says, BFSI News, ET BFSI

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The Reserve Bank of India is likely to signal the start of an unwinding of its accommodative monetary policy, introduced to cushion the economic impact of the pandemic, at a meeting next week, economists at Standard Chartered Bank wrote in a research note on Friday.

The consensus view is that the RBI will leave interest rates unchanged at its Oct. 8 MPC meeting and only start to unwind its accommodative monetary policy by reducing the gap between the repo and reverse repo rates early next year.

Some economists, including those at StanChart, however have brought forward their policy normalisation expectations amid concerns of rising domestic inflation from high oil and global commodity prices and a sharp increase in the pace of vaccination.

“We now expect India‘s Monetary Policy Committee (MPC) to hike the reverse repo rate by 40 basis points to 3.75% at the December 2021 and February 2022 policy meetings; we had earlier expected the hikes in February and April 2022,” the Standard Chartered economists said.

They expect the MPC to raise the key repo rate only in August 2022 but said the risk of an earlier hike has increased. They also acknowledged the risk of a nominal increase in the reverse repo rate on Oct. 8, on account of the higher cut-offs at recent variable rate reverse repo auctions.

“Unlike VRRR cut-offs/sizes and tenor, a reverse repo rate hike is a firmer signal of policy normalisation, in our view,” the economists said.

“We think a firmer signal is warranted when the risk of another surge in infections is largely ruled out. Additionally, with India entering the festival season, supportive monetary policy is likely to help sentiment and demand,” they added.

Nomura also expects a 40 bps reserve repo rate hike in December and a total of 75 bps repo and reverse repo rate hikes throughout 2022.

“We still believe that RBI’s normalisation strategy will hinge upon the growth outlook, and not inflation,” Rahul Bajoria, economist at Barclays said in a research note.

“Macro indicators show that India’s activity levels have begun to normalise, and with the economy recovering faster than anticipated, the RBI has more options to calibrate an exit, both through communication and actions, in our view,” he added. (Reporting by Swati Bhat. Editing by Jane Merriman)



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Analysts, BFSI News, ET BFSI

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The Reserve Bank may be hitting the end of its tolerance for high inflation and will most likely hike interest rates in the first half of 2022, analysts said on Friday.

The central bank will also start rolling back its accommodative policies which have led to easy liquidity conditions, they said.

The view from analysts came even as inflation cooled down to 5.6 per cent for July, after two months of breaching the upper end of the RBI‘s tolerance band of 6 per cent.

The central bank has been keeping the status quo on policy and continuing with the accommodative stance to help revive GDP growth.

Finance Minister Nirmala Sitharaman had on Thursday opined that the current conditions do not warrant withdrawal of the accommodative measures.

“The RBI has been tolerant of inflation and has stayed accommodative to support growth given the deep hit suffered by the economy. But it appears to be reaching the end of tether as inflation remains elevated,” rating agency Crisil said.

“If this pressure (on inflation) continues and systemically important central banks, especially the (US) Fed, begin normalising, the RBI will start to roll back accommodation. We expect the RBI to make a more definitive statement by this fiscal end, and raise rates by 0.25 per cent,” it added.

Its peer Acuite said it expects policy normalisation to begin in a gradual fashion with comfort on vaccination, clarity on fiscal stance, and global rates setting and called the increase in the quantum of variable reverse repo auctions as the first small step towards the same objective.

Next, the central bank can look at increasing the reverse repo rate by 0.40 per cent to narrow the difference between repo and reverse repo rate to 0.25 per cent by February 2022, it said, adding that the repo will be unchanged at 4 per cent.

In parallel, the vaccination drive is expected to lead to herd immunity and thereafter, the RBI will follow up with a 0.25 per cent rate hike in April 2022, it said.

Analysts at Japanese brokerage Nomura said last week’s review had signs of RBI policy pivoting towards normalization, pointing out to one of the members of the monetary policy committee also dissented against the “accommodative stance” and the increase in FY22 headline inflation target to 5.7 per cent.

“The August policy meeting already bore initial signs of a policy pivot via calibrated liquidity normalisation. We believe this will be followed by the phasing out of durable injectors of liquidity, a 0.40 per cent reverse repo rate hike (in December quarter) and 0.75 per cent of repo/reverse repo rate hikes in 2022,” it said.



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Shaktikanta Das, BFSI News, ET BFSI

Banking & Finance

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Reserve Bank of India‘s (RBI) reduction in benchmark interest rates which started before the outbreak of the Covid 19 pandemic in March 2020 has substantially reduced bank lending rates, reducing borrowing costs for both companies as well as individuals, governor Shaktikanta Das said.

“The reduction in repo rate by 250 basis points since February 2019 has resulted in a cumulative decline by 217 basis points in the weighted average lending rate (WALR) on fresh rupee loans. Domestic borrowing costs have eased, including interest rates on market instruments like corporates bonds, debentures, CPs, CDs and T-bills,” Das said. One basis point is 0.01 percentage point.

Das said the improvement in transmission of rates has proven the “efficacy” of RBI’s monetary policy measures in the current easing cycle and has reduced the debt burden on both companies as well as households.

“In the credit market, transmission to lending rates has been stronger for MSMEs, housing and large industries. The low interest rate regime has also helped the household sector reduce the burden of loan servicing. The significant reduction in interest rates on personal housing loans and loans to commercial real estate sector augurs well for the economy, as these sectors have extensive backward and forward linkages and are employment intensive,” Das said.

Replying to a question in the post policy press conference, Das said the transmission of policy rates has not only been for new loans but also existing borrowers. “With regards to outstanding rupee loans the transmisson is 117 basis points. In outstanding loans there is a cycle of loan reset so naturally it has to be done when the due date arises. In the pandemic period starting from March 2020 to July 2021, the transmission on fresh rupee loans has been 146 basis points whereas for outstanding loans it has been 101 basis points, so transmisson has happened on outstanding loans also,” Das said.

On Friday, the Reserve Bank of India maintained status quo on interest rates as expected and assured it would do whatever it takes to get the economy back on a firm footing despite rising inflation. Repo rate, the rate at which it lends to banks was kept unchanged at 4% even as monetary policy committee raised inflation forecasts for the fiscal year by nearly 60 basis points to 5.7% citing high retail prices of petrol and diesel, and soaring prices of industrial raw materials.

Das also reiterated the RBI’s commitment to help the central and state government ensure an orderly completion of their borrowing programmes at a reasonable cost while minimising rollover risk.



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SFBs avoid special liquidity window as MSME credit demand dries up, BFSI News, ET BFSI

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Small finance banks (SFBs) that got a push from the Reserve Bank of India in terms of special liquidity window have been slow to tap into it.

Under the Rs 10,000-crore liquidity facility announced by the Reserve Bank of India (RBI) in May as part of its pandemic relief measures, SFBs get funds at 4% for three years, which is significantly lower than their average cost of funds, for fresh lending to micro, small and medium enterprises (MSMEs). The new facility helps them to get about 1-1.5% positive carry on the borrowed funds, even after investing the same amount into government securities as mandated by the central bank.

However, in the Special Long-Term Repo Operations (SLTRO) conducted by the Reserve Bank of India in May, June and July, SFBs cumulatively borrowed only Rs 1,640 crore against the notified amount of Rs 10,000 crore. They can still borrow the unutilised amount of Rs 8,360 crore till October.

Experts says ample liquidity and muted credit demand from the micro, small and medium enterprise (MSME) segment.

SLTRO boost

Announcing the SLTRO in May, RBI governor Shaktikanta Das had said, “Small finance banks (SFBs) have been playing a prominent role by acting as a conduit for the last-mile supply of credit to individuals and small businesses.”.

“To provide further support to small business units, micro and small industries, and other unorganised sector entities adversely affected during the current wave of the pandemic, it has been decided to conduct special three-year long-term repo operations of Rs 10,000 crore at repo rate for the SFBs, to be deployed for fresh lending of up to Rs 10 lakh per borrower,” Das had said, adding that the facility will remain open till October 31, 2021.

Priority loans

The RBI had also allowed the classification of priority sector lending for loans given by small finance banks (SFB) to micro-finance institutions (MFI) for on-lending to individuals.

The decision has been taken to address the liquidity issues of MFIs amid the severe Covid crisis.

RBI Governor Shaktikanta Das said: “In view of the fresh challenges brought on by the pandemic and to address the emergent liquidity position of smaller MFIs, SFBs are now being permitted to reckon fresh lending to smaller MFIs (with asset size of up to Rs 500 crore) for on-lending to individual borrowers as priority sector lending.” This facility will be available up to March 31, 2022.



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Over 28% of loans now linked to external benchmarks, BFSI News, ET BFSI

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The introduction of the external benchmark system for lending and deposit rates has helped in improving the monetary transmission by banks, an RBI article said.

The share of outstanding loans linked to external benchmarks has increased from as low as 2.4 per cent during September 2019 to 28.5 per cent during March 2021, said the article prepared by RBI officials.

“Over the years, the Reserve Bank‘s efforts in improving transmission to deposit and lending rates of banks have started to bear some fruits particularly with the introduction of the external benchmark system,” it said.

The external benchmark system, it added, has incentivised banks to adjust their term as well as saving deposit rates as lending rates undergo frequent adjustments in line with the benchmark rates, to protect their net interest margins thus broadening the scope of transmission across sectors that are not even linked to external benchmarks.

External benchmarks

The RBI had asked banks to link all new floating rate personal or retail loans and floating rate loans to micro and small enterprises (MSEs) to the policy repo rate or 3-month T-bill rate or 6-month T-bill rate or any other benchmark market interest rate published by the Financial Benchmarks India Private Limited (FBIL) from October 1, 2019.

Not just repo: Over 28% of loans now linked to external benchmarks
The adoption of external benchmark-based pricing of loans has strengthened market impulses for a quicker adjustment in deposit rates, the article said. Further, a combination of surplus liquidity conditions amidst weak credit demand conditions has enabled banks to lower their deposit rates.

The lowering of deposit rates has resulted in the decline in the cost of funds for banks, prompting them to reduce their MCLRs (Marginal Cost of Funds based Lending Rate), and in turn their lending rates.

As per the article, the transmission of policy repo rate changes to deposit and lending rates of commercial banks has improved since the introduction of external benchmark-based pricing of loans.

The transmission showed further improvement since March 2020 on account of sizeable policy rate cuts, and persisting surplus liquidity conditions resulting from various system levels as well as targeted measures introduced by the Reserve Bank.

The impact

In response to the cumulative reduction of policy repo rate by 250 basis points (bps), the 1-year median marginal cost of funds-based lending rate (MCLR) of banks declined by 155 bps from February 2019 to June 2021.

It further said the pass-through to deposit and lending rates is substantial for foreign banks during the external benchmark lending rate (EBLR) regime.

The public sector banks depend more on retail term deposits and face competition from alternative saving instruments like small savings, which constrains them from lowering deposit rates in sync with the policy repo rate.

Private sector banks have exhibited increased pass-through to lending and deposit rates compared to public sector banks.

“This uneven transmission across bank groups is partly explained by the fact that the share of outstanding loans linked to external benchmark is more for private banks as compared to PSBs,” the article said.



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Travel, tourism, retail may be the next bad loan fronts for Indian banks, BFSI News, ET BFSI

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As banks were clearing off the bad assets in their corporate loan cupboards, they may be staring at another bout of bad loans.

This time the stress is emerging from retail loans, which have been the banks’ mainstay for the last few years as corporate loans declined. The contact intensive travel and aviation sectors are also likely to give pain to banks if the Covid situation worsens.

Loans to travel and hospitality

As of April 23, 2021, banks loans to tourism, exports and restaurants stood at Rs 50,395 crore as against Rs 47,101 crore a year earlier, a rise of 7 per cent. The growth rate was less than half of the 18 per cent jump in the previous 12 months.

The total bank loans to the aviation sector as of April 23, 2021, stood at Rs 26,309 crore, up 8.2% year on year.

Retail loans

There has been a “sharp decline” in collection efficiencies in retail asset pools across asset classes in May due to the second wave of the pandemic, with microlenders witnessing a dip of up to 20 per cent, a report said on Monday.

“ICRA has observed a sharp decline in the collections of its rated securitisation transactions in April 2021 (i.e. May 2021 payouts), following the rise of Covid cases and imposition of lockdowns/movement restrictions which has impacted the operations and collection activities of the NBFCs and HFCs,” the report from domestic rating agency ICRA said.

The microfinance entities have witnessed the highest decline in collection efficiencies, pointing out that repayments of advances and overdue collection were lower by 20 per cent for April when compared with March.

The agency added that collections for SME loan pools and commercial vehicle loan pools also fell significantly from the heights achieved in March 2021.

Housing loans and loans against property have remained the least impacted and most resilient as was seen last fiscal given the association of the borrower with the underlying collateral and the priority given by borrowers to repay such loans, it said.

RBI measures

The Reserve Bank of India (RBI) has created a special liquidity window of Rs 15,000 crore with a tenor of 3 years at the repo rate to provide liquidity support to the contact-intensive sectors hit by Covid-19.

The special liquidity window encourages banks to provide fresh lending support to hotels, restaurants, tourism, aviation ancillary services, and other services including private bus operators, car repair services, rent-a-car service providers, event/conference organisers, spa, clinics, and beauty parlours/saloons.

These sectors have seen the biggest impact due to the second wave as authorities started imposing lockdown measures to curb the spread of the virus



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RBI opens Rs 15,000 crore liquidity tap for travel, tourism, contact intensive sectors, BFSI News, ET BFSI

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The Reserve Bank has extended a helping hand to services sectors severely hit by the Covid pandemic curb.

It is opening a Rs 15,000 crore On-Tap Liquidity Window at repo rate for contact intensive sectors. This will provide additional lending to the hospitality, bus operators, tourism, salons, aviation ancillary services, RBI governor Shaktikanta Das said in the central bank’s monetary policy statement.

The services PMI for May has slumped into contraction in May after eight months.

Banks can provide fresh lending support to hotels restaurants tourism, travel operators, adventure and heritage facilities, aviation ancillary services and other services that include private bus operators, car repair services, rent a car services providers, event/conference organisers, spa clinics and beauty parlours and saloons.

The RBI is also extending a special liquidity facility of Rs 16,000 crore to SIDBI to further support MSMEs.

Liquidity measures

The central bank is looking to provide ample liquidity to the industry. It has infused Rs 36,545 crore liquidity infused in the industry. Another operation under government securities 1.0 (G-sec) for Rs 40,000 crore worth of purchase will be conducted. Further, G-SAP 2.0 worth Rs 1.2 lakh crore will be taken in the second quarter FY22 to support the market.



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