Tag: reserve bank of india

Bankers view on RBI’s policy, BFSI News, ET BFSI

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Dinesh Khara, Chairman, SBI said, “The RBI policy is pragmatic and strikes a fine balance between stance and strategy. While the policy stance continues to be accommodative to continuously support growth, a strategy of careful recalibration of liquidity management is clearly indicated with the roll out of VRRR.

Dinesh Khara

The policy has also nudged banks to shift to an alternate reference rate with the discontinuation of LIBOR. The extension of the on-tap TLTRO scheme and the deferral of the deadline for meeting the operational parameters for stressed entities will help corporates navigate through the pandemic with a degree of certainty.”

Rajni Thakur, Chief Economist, RBL Bank said, “MPC announcements were pretty much on expected lines with key rates held constant and upward revision of inflation forecasts for the current fiscal year.

Policy bias in favour of nurturing growth continues and there was a strong denial of any urgency to scale back monetary support on account of higher inflation or potential global normalisation.

While enhanced VRRR quantum and one voice of dissent can be seen by market as mildly dovish, in all likelihood, RBI has kept its options open to support growth should the third wave disrupt nascent momentum or to use monetary tools to begin normalisation if growth -inflation dynamics start to get complicated.”

Rajni Thakur
Rajni Thakur

On similar lines, Siddhartha Sanyal, Chief Economist and Head – Research, Bandhan Bank said, “While the status quo on rates with a 6-0 voting and continued “accommodative” stance were on expected lines, the split voting as regards the policy stance was a modest surprise. Still, the overall tone of policy continued to focus clearly on supporting growth recovery.”

“Given higher global commodity prices, sticky food inflation and rise in domestic fuel prices, inflation may stay higher than for the RBI’s comfort. However, with the tentative and uneven nature of recovery, one expects the MPC to continue prioritizing supporting growth in the coming months.”

Sidharth Sanyal
Sidharth Sanyal

Indranil Pan, Chief Economist – YES BANK said, “RBI has attempted and managed to balance the contradicting objectives of managing inflation expectations while also communicating the need for sustained policy accommodation.

Even as the inflation forecasts for the current FY have been raised, the communication continues to be that the hump in inflation is supply-led and thus ‘transitory’ wherein the demand side push for inflation is almost absent. This is the reason for RBI to have been able to see-through the current high inflation levels.

RBI continues to highlight that any pre-emptive tightening can kill the nascent and hesitant recovery that is taking shape. In cognizance with an extremely uncertain growth climate, we think that the RBI will maintain its accommodative policy and not move on any form of tightening – be it on the rates side or on the liquidity side – till the end of the current FY.”

Yes Bank
Yes Bank

While A. K. Das, Managing Director & CEO, Bank of India has a positive outlook. He said, “Continued accommodative stance of RBI is expected to catalyze growth in real segments in a strong, broad based and sustained manner”.



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RBI says stress in retail, MSME loans is not alarming, BFSI News, ET BFSI

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The Reserve Bank of India (RBI) has said there is stress visibility in retail and MSME loan segments but the situation is not alarming.

“With regard to the moment of any kind of stress in the retail segment and MSME segment, we are very closely monitoring, yes there is a visibility of little bit stress from the past data, but definitely it’s not alarming and constantly we are engaged with the regulated entities, particularly the outlier banks and the outlier NBFCs,” RBI Deputy Governor M K Jain said in the post-policy press conference.

He said RBI had advised all regulated entities post Covid to improve their provisions to which they have responded and implemented the parameters tied to the capital adequacy ratio.

“There is a reduction in gross and net NPA as well as slippage ratio, there is an improvement in the provision coverage ratio, and there is also an improvement in the profitability. So the sector isin a better position today than what it was before the Covid pandemic, he said.

Rising stress

Banks and NBFCs have seen stress rising during the last April-June quarter in the retail and MSME segment.

State Bank of India has reported GNPAs rising to 5.32 per cent in April-June quarter compared with 4.98 per cent in the previous quarter. During the quarter the bank reported fresh slippages of Rs 15,666 crore compared with Rs 21,934 crore in the preceding quarter.

Kotak Mahindra Bank reported the gross NPAs at 3.56 per cent in the last quarter against 3.25 per cent in the previous one.

The gross non-performing assets (GNPAs) ratio of banks may rise to 9.8 per cent by March 2022, under a baseline scenario, from 7.48 per cent in March 2021, according to the Financial Stability Report (FSR) released by the RBI early last month.

Under a severe stress scenario, GNPA of banks may increase to 11.22 per cent, the report said.

The asset quality of non-banking finance companies will see elevated stress levels in the near term due to the second wave of the pandemic, but the stress will subside subsequently with improvement in collection efficiencies and rise in restructuring, according to rating agency Icra.



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Actions against HDFC Bank, Mastercard driven by keenness to ensure compliance of norms: Das

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A keenness to ensure compliance to regulatory guidelines has led the RBI to initiate strong actions against entities like HDFC Bank, Mastercard and American Express, Reserve Bank of India (RBI) Governor Shaktikanta Das said on Friday.

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RBI defers deadline for stressed firms to meet financial parameters, BFSI News, ET BFSI

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The Reserve Bank of India has deferred the deadline for achieving financial parameters under Resolution Framework 1.0 which was part of more than 100 measures announced by it to battle the economic fallout of the pandemic.

Of these parameters, the thresholds in respect of four parameters relate to operational performance of the borrowing entities, viz. Total Debt to EBIDTA ratio, Current Ratio, Debt Service Coverage Ratio and Average Debt Service Coverage Ratio. These ratios are required to be met by March 31, 2022.

“Recognising the adverse impact of the second wave of COVID-19 and the resultant difficulties on revival of businesses and in meeting the operational parameters, it has been decided to defer the target date for meeting the specified thresholds in respect of the above four parameters to October 1, 2022,” RBI Governor Shaktikanta Das said.

He said the RBI would continue to monitor the over 100 measures to ensure that the benefit percolates down to the targeted stakeholders.

“Against this backdrop and based on our continuing assessment of the macroeconomic situation and financial market conditions, certain additional measures are being announced today,” he said.

On-tap TLTRO

The scope of the on-tap TLTRO scheme, initially announced on October 9, 2020, for five sectors, has been extended to stressed sectors identified by the Kamath Committee in December 2020 and bank lending to NBFCs in February 2021. The operating period of the scheme was also extended in phases till September 30, 2021. Given the nascent and fragile economic recovery, it has now been decided to extend the on-tap TLTRO scheme further by a period of three months, i.e. till December 31, 2021.

Marginal Standing Facility relaxation

On March 27, 2020, banks were allowed to avail of funds under the marginal standing facility (MSF) by dipping into the Statutory Liquidity Ratio (SLR) up to an additional one per cent of net demand and time liabilities (NDTL), i.e., cumulatively up to 3 per cent of NDTL. To provide comfort to banks on their liquidity requirements, including meeting their Liquidity Coverage Ratio (LCR) requirement, this relaxation which is currently available till September 30, 2021, is being extended for a further period of three months, i.e., up to December 31, 2021. This dispensation provides increased access to funds to the extent of Rs 1.62 lakh crore and qualifies as high-quality liquid assets (HQLA) for the LCR.

LIBOR transition

The transition away from London Interbank Offered Rate (LIBOR) is a significant event that poses certain challenges for banks and the financial system. The Reserve Bank has been engaging with banks and market bodies to proactively take steps. The Reserve Bank has also issued advisories to ensure a smooth transition for regulated entities and financial markets.

In this context, it has been decided to amend the guidelines related to (i) export credit in foreign currency and (ii) restructuring of derivative contracts,” Das said.

Banks will be permitted to extend export credit in foreign currency using any other widely accepted Alternative Reference Rate in the currency concerned. Since the change in reference rate from LIBOR is a “force majeure” event, banks are also being advised that change in reference rate from LIBOR/ LIBOR related benchmarks to an Alternative Reference Rate will not be treated as restructuring, he said.



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RBI keeps rates unchanged, stance accommodative, BFSI News, ET BFSI

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The Reserve Bank of India‘s Monetary Policy Committee has kept the repo rate at 4% and other rates unchanged. The RBI‘s Monetary Policy Committee also voted with a 5:1 majority to continue with an ‘accommodative’ stance as long as necessary to support growth.

Reverse repo rate remains at 3.35%, Marginal Standing Facility Rate and Bank Rate at 4.25% while the projection for India’s real Gross Domestic Product (GDP) is maintained at 9.5 per cent for FY22, RBI Governor Shaktikanta Das said while announcing the monetary policy review.

Inflation target raised

RBI has raised the CPI inflation estimate for FY22 to 5.7% from 5.1%.

“CPI inflation surprised on the upside in May; price momentum however moderated. Outlook for aggregate demand is improving but underlying conditions are still weak. More needs to be done to restore supply-demand balance in no. of sectors.

He said the recent inflationary pressures are evoking concerns but the current assessment is that these are transitory.

“We are in n a much better position as compared to June 2021. Need to remain vigilant on the possibility of a third wave,” he said.

Shaktikanta Das, Governor, Reserve Bank of India



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Will RBI take away the punch bowl from IPO financing party?, BFSI News, ET BFSI

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Ever thought why the initial public offerings of many companies receive bids that are over 100 times the offer. Apart from the investor appetite and retail frenzy the biggest factor in work is margin financing of IPOs by banks and NBFCs.

July saw several records being broken in the IPO market as a whopping Rs 8.86 lakh crore were bid for IPOs of Rs 18,400 crore on offer. About 98% of the money came from margin financing. Zomato, with an IPO size of Rs 9,375 crore, got bids for Rs 3.58-lakh crore, a subscription of nearly 39 times.

How does it work?

Unlike for retail investors, there is no limit on HNIs and institutions bids in an IPO. HNIs have to put only Rs 1 crore of their own for a bid worth Rs 100 crore while the NBFC funds the remaining 99 per cent. With the lenders charging 10-15%, the cost is just Rs 20 lakh towards interest for Rs 100 crore bid for 3-5 days. With all IPOs listing above the issue price, the leveraged investor can exit on the opening day. With a spectacular listing like the Zomato that gave 63% returns, more players are attracted to the market. The risk of the IPO collapsing in the initial days is virtually absent due to the heavy bidding and grey market premium.

With 15 per cent of an IPO reserved for HNIs and 50 per cent for institutions, their allotment is often enough to cover their interest cost as their bids are extremely high. Self-funding and other sources of borrowing would further increase the size of the IPO financing market.

The fund raise

Bajaj Finance had raised Rs 27,200 crore since June 10, while Infna Finance, Aditya Birla Finance and Tata Capital have collected Rs 13,225 crore, Rs 11,380

crore and Rs 9,625 crore, respectively. Two JM Financial firms have together raised Rs 16,300 crore, while IIFL Facilities Services and IIFL Finance have garnered about Rs 11,600 crore, according to reports. Most non-bank lenders raised funds by issuing commercial papers in the primary market. These papers have tenures of seven to 10 days and yield to maturity between 3.7% and 5.8%.

The risk

Financiers insist the risk is limited since there is a margin for the lender in terms of shares. Normally, higher the funding cost, lower the chances of making money on the IPO after all costs are factored in. Investors need to pay interest on the entire amount borrowed and not on the amount actually allotted. That is why higher oversubscription works against borrowers as they have to have more interest on idle funds.

RBI proposal

The euphoria due to excess funding is leading to artificial demand and distorting IPO prices in the short term. While the funded investors exit on listing, serious investors get low allotments.

In January this year, the Reserve Bank of India had proposed to cap IPO financing by NBFCs to up to Rs 1 crore per person, a move which may lead to a sharp drop in bidding by high net worth individuals (HNIs) and a drastic reduction in subscriptions of offers.

Banks have a Rs 10-lakh limit on IPO financing and there is no such cap for NBFCs. “IPO financing by NBFCs has come under close scrutiny, more for their abuse of the system,” the RBI said in a discussion paper. “Taking into account the unique business model of NBFCs, it is proposed to fix a ceiling of Rs 1 crore per individual for any NBFC,” the RBI said. Market players said that RBI’s proposed rule would surely bring a break to highly subscribed IPOs.



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RBI denies Rupee Bank, MSC Bank merger nod, BFSI News, ET BFSI

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Pune: The Reserve Bank of India (RBI) has denied the stressed Rupee Cooperative Bank permission to merge with the Maharashtra State Cooperative Bank (MSCB) in a culmination of a process that has taken nearly two years.

The order also disallowed the MSCB to take over the Mumbai-based City Cooperative Bank, stated a communication to both the banks and the MSCB from the Commissioner for Cooperation and Registrar, Cooperative Societies (CC&RCS). The communication has been accessed by the TOI.

Though neither the RBI and nor the CC&RCS communicated reasons for the denial of permission to the banks to merge, sources familiar with the matter said National Bank for Agriculture and Rural Development (Nabard) expressed reservations about the deal. A source said Nabard expressed concerns about agro-finance being used for retail banking, with the MSCB being primarily an agricultural bank. The source said RBI was concerned about the merger setting a precedent for cooperative banks across the country, which would bring about policy difficulties.

MSCB chairman Vidyadhar Anaskar said, “We had prepared and submitted the proposal nearly two years ago after RBI asked for a joint proposal with the Rupee Bank and getting approved at the annual general meeting. But during this time, we were asked no questionsabout the financial positions or feasibility. Nabard should not have had a say in this proposal, as they are a supervisory authority, with RBI being the sole licensing authority,”

Rupee Bank administrator Sudhir Pandit said, “The RBI’s decision is not totally unexpected. It is necessary to mention here that there are no shortcomings or lacunae in the merger proposal. Rupee Bank has good business potential. We will continue our efforts for its merger with other strong banks, or its conversion into a small finance bank or its revival.”



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Decision-day Guide, BFSI News, ET BFSI

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By Anirban Nag

India’s monetary policy makers are likely to leave interest rates untouched for a seventh straight meeting, as their focus remains more on fixing a fickle economy than on controlling stubborn price pressures.

The Reserve Bank of India’s six-member Monetary Policy Committee is meeting amid weak indicators raising doubts about the economy’s ability to sustain a nascent recovery. Some parts of the nation, where the fast-spreading delta variant was first identified, are still battling a rise in Covid-19 infections with researchers warning of an impending third wave of the pandemic.

All 21 economists surveyed by Bloomberg as of Wednesday afternoon expect the MPC to leave the benchmark repurchase rate unchanged at 4% on Friday. While the RBI is widely expected to announce another tranche of its so-called government securities acquisition program, bond traders will be watching for any cues on return to policy normalization.

For now, Governor Shaktikanta Das has maintained that growth is the main challenge and that inflation, while sticky, is only a “transitory hump.”

Here’s what to watch for in the MPC decision to be announced by Das in Mumbai on Friday morning:
Inflation ‘Chameleon’
The governor is likely to bump up the RBI’s inflation forecasts, given the ripple effect of a sustained rise in input costs along with high fuel taxes.

Headline inflation is already hovering well above the upper tolerance limit of the central bank’s 2%-6% target band, and some economists see the measure breaching the RBI’s 5.1% outlook for this fiscal year to end up in the region of 5.5%, or thereabouts.

“Several inflation drivers have come and gone,” said Pranjul Bhandari, chief India economist at HSBC Holdings Plc. in Mumbai. “But inflation has stayed elevated, like a chameleon, adapting itself rather quickly to the driver of the day. In recent months, price pressures have spread widely across the food and core baskets.”

Growth Prospects
The central bank is likely to retain its growth estimate of 9.5% for the year to March 2022.

A slew of high frequency indicators from purchasing managers’ surveys to mobility indicators and tax collections indicate a rather uneven recovery from the pandemic’s second wave. Hopes that the monsoon rains, which have been below normal in July, will pick up in the August-September period and provide a boost to rural demand is likely to provide some comfort to policy makers who are focused on reviving growth.

Normalization or Not?
With inflation running near the upper end of the RBI’s target and the economy showing signs of a recovery, bond investors are of the view that the central bank could signal when it intends to start unwinding some of its extraordinary easy policy.

Although Das has reiterated that normalization is not on his mind yet, economists are of the view that stubborn inflation could force his hand.

Withdrawing some of the excess funds in the banking system via longer dated reverse repo auctions — an action it took at the start of the calendar year — could be a start of that process. Bloomberg Economics estimates excess cash is at over 8 trillion rupees ($107.8 billion).

RBI's policy rates anchored at lows despite inflation: Decision-day Guide
“The RBI could re-announce the long tenor variable rate reverse repo auctions as the first step toward normalization,” wrote Samiran Chakraborty, chief India economist at Citigroup Global Markets in Mumbai. “Beyond that, the MPC is unlikely to provide much guidance on the timing and pace of normalization.”



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Cochin Chamber of Commerce and Industry seeks review of RBI circular on current accounts

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The Cochin Chamber of Commerce and Industry has requested the Reserve Bank of India (RBI) for a review of its circular of August 2020 restricting the use of current accounts with banks other than those with whom loan facilities are granted.

As per the RBI’s directive, no bank can open or allow operation of current accounts for customers who have availed credit facilities in the form of cash credit/ overdrafts in any other bank.

K. Harikumar, the Chamber President said that the accounts have been closed by the banks unilaterally even in the case of borrowers who maintained current account with different branches of the same bank from where the cash credit/ overdraft facility was availed.

Also read: RBI gives banks 3 more months to comply with new rules on opening current accounts

It explained that the loan facility may be granted from a bigger branch while the companies operated current accounts with the same bank nearer to the factories, which could be in different locations.

These current accounts were used for disbursements to local purchases, wages, salary etc. to prevent the risk of carrying cash. These current accounts which are maintained in the same bank could be monitored and ensured that no diversion of funds takes place. The closure of these current accounts has put the companies in a very tight situation.

Similarly, small traders whose collections from sales are mostly in cash remit the proceeds in current accounts with smaller banks and later transfer the same to the bank where the overdraft facilities are availed.

They are forced to resort to maintaining current accounts since new generation banks and big public sector banks either refuse to accept cash or charge hefty fee as cash counting charges. These traders are also totally at a loss.

The chamber has requested the RBI to permit the usage of current accounts and also requests that a detailed dialogue be entered into with the chambers/ trade associations and ensure that genuine business is not put to difficulty on account of this circular.

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ANZ Bank’s Mathur, BFSI News, ET BFSI

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NEW DELHI: The Governor of the Reserve Bank of India, Shaktikanta Das, said last year that the Covid-19 crisis is the sort of event that occurs once every 100 years. Policymakers from North Block to Mint Street have been attempting to find an adequate response to a crisis of this magnitude.

The Chief Economist, South East Asia and India at ANZ Bank, has a contrarian view.

In a chat with ETMarkets.com, Sanjay Mathur, a veteran economist, said the need of the hour is not capital spending that generates long-term gains. “Rather, what is important now and for years to come, is to lift people out of poverty, as that would have a larger impact on the economy,” he said.

“Let me take a controversial stand here. Our thinking on the fiscal has become somewhat stereotyped – capital spending is good and revenue spending is bad. And for FY22, the focus has been on capital spending. But the nature of the current crisis is different: it is a humanitarian crisis that calls for more massive welfare measures. A large section of our population has slipped into poverty, income and wealth disparities are rising,” Mathur said.

The government and RBI have unveiled various spending schemes since the pandemic struck last year; the flagship programme being the ‘Atmanirbhar Bharat’ scheme, which essentially prioritises import substitution.

However, out of the Rs 20 lakh crore announced by Prime Minister Narendra Modi, the actual fiscal outgo is very small. A bulk of the programmes are reflective of RBI’s liquidity infusion in the banking system, while the rest are mostly credit guarantees.

One cannot exactly blame the government, as its finances have been under strain since well before the pandemic.

In the last Budget, the government put aside the prescriptions of the Fiscal Responsibility and Budget Management Act and announced a fiscal deficit of 6.8 per cent of GDP for this financial year. The Centre had earlier set a target of 3.0 per cent fiscal deficit by 2017-18 (Apr-Mar).

However, it will not be accurate to say that the entire strain was on account of the pandemic. A year before Covid-19 wreaked havoc on the economy, the government had already skipped the targets it had set for itself under the FRBM Act, as tax collections fell short of targets.

Mathur said the government and the central bank together have done what they could within their constraints. “There was very little fiscal headroom to start with,” he said.

“So while I do acknowledge that asset creation has a larger multiplier on growth, this crisis is also unique and requires a different response,” he added.



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