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.
CRR to remain unchanged at 4.00 pc this fiscal
A spiralling inflation is likely to force the Reserve Bank of India to up the Cash Reserve Ratio by 0.75 per cent in FY 09, along with a 1 per cent hike in repo and reverse repo rates, global financial services major, StanChart said.
Cash Reserve Ratio (CRR) is the amount of funds that the banks have to keep with the Reserve Bank of India. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks.
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.
According to bankers, this is because the currency demand during the festival season is expected to remain strong.
Amid a debate on the basis of a monetary policy stance, one may be curious enough to know how non-food retail inflation has behaved over the years in India. Let the eager souls catch a glimpse of facts. In the past 10 years, non-food inflation came down below 4 per cent on two occasions - pre-Covid period of 2019-20 and now in the first four months of the current financial year (FY25).
Highlights of the RBI monetary policy.
RBI had previously cut repo rate by 0.25 per cent each in January and March.
The RBI's surprise rate hike may have been prompted by its inability to convince the government to cut excise duty on petrol and diesel and take other supply-side measures to tame runaway inflation, sources aware of the central bank's thinking said on Thursday. There has been a record Rs 10 a litre increase in petrol and diesel prices in a matter of 16 days beginning March 22, which has further fuelled the already high commodity prices. The RBI, which is mandated to ensure inflation is under 6 per cent, acted with a 0.40 per cent increase in repo rate to check prices before they went completely out of hand.
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.
The Reserve Bank on Monday barred IIFL Finance Ltd from disbursing gold loans, with immediate effect following multiple supervisory concerns, including serious deviations in assaying and certifying the purity of the yellow metal. A leading financial services provider, IIFL Finance offers a range of loans and mortgages. The latest directions from the Reserve Bank of India (RBI) pertain to only the gold loan business.
This cut was welcome not just for its well-planned timing, but also for its relative size; the RBI has, too often, moved with baby steps when strides are called for.
RBI Governor Duvvuri Subbarao on Tuesday defended the bank's decision to keep the key policy rate unchanged saying inflation could rise to above 8 per cent in the near-term.
The Reserve Bank of India's (RBI's) decision to withdraw the incremental cash reserve ratio (I-CRR) is expected to benefit banks during the festival season. They are likely to increase deposit rates by up to 25 basis points (bps) in select maturity buckets. The rise in demand for funds to cover tax payments and meet quarter-end business targets could influence rate decisions by banks, according to bankers and money market executives.
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.
He said despite liquidity injection by RBI, borrowers should not expect reduction in interest rates for short- and medium-term loans. He, however, added that the measures announced by the government and RBI have starting yielding results.
From the Sensex pack, IndusInd Bank, NTPC, Asian Paints, Hindustan Unilever, JSW Steel, Tech Mahindra, Bajaj Finance, Infosys, Wipro, ICICI Bank, Bajaj Finserv, HDFC Bank and Tata Motors were among the major laggards. HCL Technologies, Power Grid, Titan, Reliance Industries, UltraTech Cement, Tata Steel, State Bank of India and Mahindra & Mahindra were the gainers.
Talks of a merger between HDFC Bank and parent HDFC Ltd had gained steam nearly eight years ago, when the Reserve Bank of India allowed banks to issue long-term bonds to fund infrastructure and affordable housing. At that time, key executives at both entities denied any such proposal. And today, the merger has been officially announced by the two players.
The RBI has hiked repo or short-term lending rate up by 0.25 pc to 7.75 pc.
Industry houses are emphatic with the RBI pruning repo rate and CRR by 0.25 per cent each after a long nine months in its third quarter monetary policy review.
The broader Nifty also slipped from record by falling 33.15 points at 10,081.50 as investors booked profits.
Demonetisation of the high value currency notes of Rs 500 and Rs 1,000 did not have any discernible impact on currency in circulation (CIC) in the country, which has soared by almost 83 per cent since its announcement on November 8, 2016. The Supreme Court on Monday upheld the decision of the government on demonetisation. On November 8, 2016 Prime Minister Narendra Modi had announced demonetisation of old Rs 1,000 and Rs 500 banknotes and one of the key objectives of the unprecedented decision was to promote digital payments and curb black money flows.
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KC Chakrabarty who was appointed as RBI deputy governor in 2009, is considered frank with his views.
Mirroring weak cues from the overseas markets, the Sensex opened with a negative gap of 215 points at 10,765. The index thereafter tried to recover but slipped to lower levels after the Reserve Bank of India (RBI) announced its annual credit policy.
Within hours of RBI slashing the Cash Reserve Ratio (CRR) by 0.25 per cent, State Bank (SBI) on Tuesday hinted at a likely reduction in lending rates soon.
Chidambaram welcomes CRR cut as a good small step forward.
Real estate developers said on Tuesday that RBI's decision to cut cash reserve ratio will help improve the liquidity position of various sectors, including realty, but felt that interest rates should be brought down to boost housing demand.
The NSE Nifty ended at 3,044, up 158 points. The market breadth was fairly positive with over three advancing stocks for every declining share - out of 2,652 stocks traded, 1,970 advanced, 633 declined and the rest were unchanged today.
Since the start of the year, the RBI has had to contend with rising inflation and increased liquidity in the financial system causing it to raise CRR and repo rate to reign in the excess money.
With the government proposing to give flexibility to the Reserve Bank of India in fixing prudential limits, bankers expect a cut in statutory liquidity ratio
The banking system's liquidity slipped into deficit for the first time in the current financial year (2023-24) due to the imposition of the Incremental Cash Reserve Ratio (I-CRR) for banks and outflows from goods and services tax (GST) payments, according to dealers. Reserve Bank of India (RBI) data shows it injected Rs 23,644 crore on August 21. The last time liquidity was in deficit was on March 27, when the RBI injected Rs 45,575 crore.
RBI on Tuesday slashed short-term lending rate by 0.25 per cent to 7.5 per cent, which the bankers read as not enough for an immediate cut in their lending rates.
All categories of NRI deposits saw net inflows in July.
A bill to amend Banking Regulation Act, which will enable RBI to lower the mandatory limits on statutory liquidity ratio for commercial banks, will be introduced in Parliament soon.
Foreign institutional investors pumped in nearly $167.35 million (Rs 899.83 crore) into the local stock markets on Tuesday, according to the BSE provisional data.
Home loans and consumer goods loans are likely to remain high as the Reserve Bank of India kept its key policy rates unchanged during its Monetary Policy review on Tuesday.
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