While liquidity in the banking system has turned surplus in the last few weeks, it could go back to deficit again, mainly due to corporate advance tax outflows. The net liquidity surplus of the banking system rose to touch Rs 1 trillion on Tuesday on the back of government spending, according to the data released by the Reserve Bank of India.
The Reserve Bank of India has raised inflation projection to 6.5 per cent with an upside bias by this fiscal end from 5 per cent projected earlier.
Moreover, the RBI's use of reserve ratios, statutory liquidity ratio and cash reserve ratio as monetary policy tools affected banks' profitability: No interest is paid on CRR balances, and the interest yield on SLR securities is far lower than the yields on advances.
The flow of money into Non-Resident Indians (NRIs) deposits witnessed a substantial increase, touching $2.14 billion in the first quarter of this financial year (Q1FY24), compared with $349 million in the same period in FY23. The outstanding NRI deposits rose by $2.5 billion, standing at $141.28 billion at the end of June 2023, up from $138.77 billion in May 2023, according to Reserve Bank of India (RBI) data. RBI released the updated data in the bulletin after almost three months.
The apex bank hiked its repo, reverse repo (overnight lending and borrowing rates) to 5.25 per cent and 3.75 per cent, respectively, while the cash reserve ratio, or the portion of deposits banks park with RBI, to 6 per cent in line with analysts' expectations.
State Bank of India (SBI), India's largest lender, is looking to raise Rs 10,000 crore through 15-year infrastructure bonds as early as next week, said multiple sources aware of the development. Market participants expect a coupon in the range of 7.15-7.18 per cent for SBI's upcoming infrastructure bond issuance. This comes as demand for longer-tenor papers has remained strong in recent domestic capital market offerings.
Challenged by unrelenting inflationary pressures, Reserve Bank on Tuesday announced stringent measures of hiking mandatory cash reserve of the banks and its short-term lending rate to them to suck up an estimated Rs 20,000 crore (Rs 200 billion) -- a move that could make loans dearer for housing, car and personal expenses as also to the industry.
Investors can meet cash needs without selling their securities.
As deposit growth lags credit expansion, Indian banks face shrinking low-cost Casa inflows, rising funding costs, and structural shifts driven by UPI, e-Kuber, and digital savings trends, points out Tamal Bandyopadhyay.
Home, consumer and other loan rates are expected to go up with Reserve Bank of India announcing a hawkish credit policy hiking key short-term lending rate by 0.5 per cent and mandatory cash reserve requirement by 0.25 per cent to contain runaway inflation now at 11.89 per cent.
The Reserve Bank of India on Friday cut short-term lending rate by 0.25 per cent.
The Reserve Bank of India said it would attempt to bring down inflation from 11-12 per cent to 7 per cent by March, 2009.
There are however, enough dovish signals in the governor's statement to indicate a pro-growth policy going forward.
RBI is also considering a proposal to re-introduce inflation-indexed bonds.
The RBI, however, kept other key rates and ratios like repo, reverse repo and cash reserve ratio unchanged.
Reserve Bank is scheduled to announce its bi-monthly monetary policy on August 3.
The Reserve Bank of India (RBI) clarification on the final norms for new bank licences has much to mull on for the many entities interested. It has clearly ruled out any benefit to the new entrants in terms of more time to meet the cash reserve ratio/statutory liquidity ratio (CRR/SLR) requirements.
When investing in fixed-income products, balancing considerations like safety, liquidity, and income is essential.
According to bankers, this is because the currency demand during the festival season is expected to remain strong.
After the Reserve Bank unveiled the third quarterly review of the monetary policy, several bankers said that they may not go in for rate cut immediately.
It is a classic case of extremes: The worst contraction in GDP along with the highest-ever levels of cash in the economy; and a severe dent in consumption together with strong growth in bank deposits and digital payments.
In short, if India Inc lives up to the expectations in the required measure of resilience, innovation, initiative, imagination and leadership, it can help harmonise the imperatives of growth with control of inflation.
State Bank of India Chairman Pratip Chaudhuri again made a strong pitch for a reduction in banks' Cash Reserve Ratio (CRR) at the Reserve Bank's mid-quarter review of monetary policy scheduled September 7.
CRR is the proportion of deposits each bank must keep in the form of cash.
While the IT stocks traded firm since the start of the day, the BSE IT index soared to a 10-year high.
The economists, polled by industry body Federation of Indian Chambers of Commerce and Industry, said the RBI may raise the cash reserve ratio, which is a portion of deposits that banks keep in cash with the central bank, by 50 basis points to 5.5 per cent, although this would have no impact on containing inflation.
Cash-strapped real estate firms are resorting to short-term borrowings of funds to complete ongoing projects as the economic slowdown has virtually halted demand for properties, freezing cash flows.
'This is an area where good lending can happen, and that is one of the priorities for the next quarter.'
The Reserve Bank might hike the Cash Reserve Ratio (statutory cash balances banks maintain with the apex bank) by 0.50% in its credit policy if inflation remains high, feel Indian bankers. The RBI is scheduled to announce annual credit policy for fiscal 2008-09 on April 29. RBI is likely to tighten money supply in its forthcoming annual credit policy to suck out excess liquidity from the system. Growth has moderated in recent months.
Property developers expect to boost sales of homes and borrow funds at lower rates after the Reserve Bank of India on Friday reduced its key benchmark rate and cut the cash-reserve ratio requirement in a bid to help banks lower interest rates and lend more to cash-starved sectors, including the real estate. They are hopeful of attracting more overseas investment in projects as demand revives.
Industry has been going through a phase of high interest rates, declining demand and insufficient working capital.
Showing concerns over hardening inflation, the Reserve Bank today left the key interest rate unchanged but reduced cash reserve ratio by 0.25 per cent to inject Rs 17,500 crore (Rs 175 billion) liquidity into the financial system.
Industry body Confederation of Indian Industry said with the government having announced a clear road map for fiscal consolidation and non-food inflation demonstrating a secular decline, conditions are conducive for RBI to have intervened with a repo and cash reserve ratio reduction.
The RBI has, however, left the cash reserve ratio or bank rate, which is the amount of cash that banks have to park with the central bank to maintain prudential norms, unchanged at 6 per cent.
The bank kept cash reserve ratio unchanged at 6 per cent.
The Reserve Bank of India (RBI) may not go in for key policy rate cuts in its quarterly policy review slated for January 23, said a senior finance ministry official.
What impact will this hike in RBI rates have on the banks and industries? What do the bankers have to say? How is India Inc reacting to the rate change?
