SBI was the top gainer in the Sensex pack, rallying over 10 per cent, followed by Kotak Bank, Dr Reddy's, UltraTech Cement, ITC and HDFC Bank. On the other hand, Axis Bank, Bharti Airtel, ICICI Bank, Maruti and HCL Tech were among the laggards.
India's current account deficit is expected to deteriorate in the current fiscal on account of costlier imports and tepid merchandise exports, according to the Finance Ministry's monthly economic review. The review released on Thursday by the ministry also said that global headwinds would continue to pose a downside risk to growth as crude oil and edibles, which have driven inflation in India, remain major imported components in the consumption basket. For the present, it said, "their global prices have softened, as fears of recession have dampened prices somewhat. This would weaken inflationary pressures in India and rein in inflation."
Equities went into a tailspin on Wednesday after the Reserve Bank surprised the market with a mid-cycle rate hike in a bid to tame soaring inflation.
Majority of India Inc is of the view that extreme moves in the form of monetary tightening made by the Reserve Bank to curtail inflationary pressure would slow down economic growth, a survey by industry chamber Assocham reveals.
Experts say the central bank will refrain from using the CRR as a liquidity tool, as a reduction in the rate will go against its current anti-inflationary stance.
The central bank has also left the Bank Rate and the Cash Reserve Ratio unchanged at 6 per cent and 5 per cent, respectively, in the annual policy announcement 2007 released on Tuesday.
Retail depositors are earning negative returns on their bank deposits and hence, there is a need for reviewing taxes on interest earned, economists at the country's largest lender SBI have said. If not for all the depositors, the taxation review should be carried out for at least the deposits made by senior citizens who depend on the interest for their daily needs, the economists led by Soumya Kanti Ghosh said in a note, which pegged the overall retail deposits in the system at Rs 102 lakh crore. At present, banks deduct tax at source at the time of crediting interest income of over Rs 40,000 for all the depositors, while for senior citizens the taxes set-in if the income exceeds Rs 50,000 per year.
A day after RBI deputy governor's comment, Chaudhuri says his idea on cash reserve ratio was meant to ignite public debate
Hike in CRR to suck out Rs 12,500 crore from the banking system.
The country's two biggest state-run lenders on Saturday pitched for treating a portion of their gold deposits as part of the mandatory cash reserve ratio (CRR) or statutory liquidity ratio (SLR), both of which banks consider as non-productive.
The unexpected interest rate hike by the RBI on Wednesday will have the banking system on average making a 10-15 bps gains on the yields, with private banks making larger gains as 57 per cent of their loans are linked to external benchmark rate and 40 per cent to the marginal cost of lending rates, as per a report. Stating that lenders and borrowers will face volatile times with the Reserve Bank raising the repo rate by 40 bps to 4.40 per cent and the cash reserve ratio (CRR) by 50 bps on May 4 in an off-cycle policy move, India Ratings said the market rates had already been moving higher before the move. The 364-day T-bills have moved up 120 bps and 10-year G-sec by 140 bps since May 2020, when the repo rate was cut to a record 4 per cent, which led to an expectation of a faster and sharper rise in interest rates in the system but the central bank stayed the course to support the fragile economy battered by the pandemic.
RBI said the outlook for economic growth for 2016-17 has turned uncertain after the unexpected loss of momentum by 50 basis points in Q2 and the effects of the withdrawal of banned notes
That's the only way to convince those who have money to return to the bank fold, ditching other asset classes, says Tamal Bandyopadhyay.
With enough liquidity in the system, lending and deposit rates are likely to fall further
If you are running a sweetmeat shop, will you manage a dairy for milk supply or buy milk from the market? Banks are running a dairy (which has its cost for processing milk), while NBFCs are buying milk from the market, observes Tamal Bandyopadhyay.
India grew at 6.7 per cent in 2008-09. For the current fiscal 2009-10, the Economic Survey projected a 7 per cent growth rate plus/minus 0.75 per cent.
Bankers need to take a call on whether they will allow technology firms to run banks or banks themselves will turn into tech firms, says Tamal Bandyopadhyay.
Leeway on CRR and SLR was a long-standing demand from banks, which the RBI did not agree to till recently.
HDFC and HDFC Bank's merger - touted as India's biggest-ever corporate merger - pumped up shares of the two entities on the bourses. Shares of Housing Finance Development Corporation (HDFC) skyrocketed 9 per cent while those of HDFC Bank zoomed 10 per cent. In comparison, the benchmark S&P BSESensex and the Nifty50 indices settled 2.2 per cent higher on Monday.
India's central bank withdraws cap of Rs 3,000 crore (Rs 30 billion) on daily reverse repo (overnight borrowing) transaction from August 6.
The new effective repo rate for the third quarter is now fixed at 7.25 per cent while CRR rate has revised to 4 per cent.
RBI had last week announced a 0.5 per cent increase in cash reserve ratio to 5.5 per cent in two phases to absorb excess liquidity from the economy and check rising prices.
Bank lending has seen a significant fall. RBI needs to bring liquidity into the system immediately.
Despite several constraints, the policy has tried to support growth through more liquidity infusion.
RBI expects more from the government than last week's very limited package of reforms and fiscal measures.
The key short-term lending rate (repo rate)has been hiked by 0.25 pc to 7.50 pc.
'When you need to revive the economy, when you need to revive aggregate demand, you cut taxes.' 'But what's this government doing?' 'It's increasing taxes for the middle class and the vast majority of the poor on fuel, which has a ratchet effect on most other products.'
Morgan Stanley expects RBI to cut rates sharply rather than "dribble down".
Calling out the high real interest rates -- the differential between the policy rate and headline inflation -- as an impediment to investment, the SBI report said the RBI can cut rates by 0.35-0.50 per cent at its next policy announcement.
Bankers expect RBI to help them spur lending growth.
Banks want lower provisioning burden on recast debt, interest on cash reserve ratio deposits.
Banking, realty and capital goods sectors-- the sectors which are more interest sensitive and hence battered for long now--were the winners today.
The move may release funds locked in government securities and add to liquidity. With inflation expectations lowered, this should not impact bond sentiment in the short run
Bank of America Merrill Lynch on Monday trimmed India's economic growth estimates by 30 basis points to 7.1 per cent for the current fiscal, while global financial services giant Morgan Stanley downgraded its GDP growth forecast for the current fiscal to 7.3 per cent from the earlier 7.7 per cent.
Business houses expect rate cut in next RBI policy.
Let's take a quick look at what all these terms mean to see how they affect the loan interest rates.
The non-food component in the price basket will continue to keep inflation at a high level and result in a "long pause" in interest rates, a foreign bank said on Wednesday. The central bank is likely to pare the pandemic-driven emergency response as well, the report by Singaporean lender DBS said. It can be noted that the high inflation driven by the food prices has forced the RBI to go for a status quo in rates for the three consecutive reviews of the bi-monthly policy meetings, even as growth continues to be in the negative territory.
Most bankers on Monday ruled out the possibility of lending rates softening following RBI's move to suck out excess liquidity, but housing finance leader HDFC sees a scope for reduction."There is enough liquidity in the system, softening of lending rate could happen," HDFC chairman Deepak Parekh said. Interest rates can come down despite CRR (percentage of total deposits that banks keep with RBI) hike, he said.
Interest rates on home and retail loans are expected to rise, as a fallout of Reserve Bank announcing a 0.5 per cent hike in Cash Reserve Ratio (CRR) to squeeze money supply to rid the economy of inflation. The CRR, the amount of funds banks are required to park with the apex bank, has been raised to 8 per cent to suck out Rs 18,500-crore liquidity from the system.
Banks have asked for an exemption of statutory requirements such as the cash reserve ratio (CRR) and the statutory liquidity ratio (SLR) for lending to the infrastructure sector. While the CRR is a tool where banks have to set aside liquidity with RBI in proportion of the deposits mobilised by them, the SLR requires banks to invest 25 per cent of their liabilities in government securities to generate instant liquidity.
