The Reserve Bank of India has kept the key short term lending rate (repo rate) unchanged at 7.25%.
But there are challenges, observes Tamal Bandyopadhyay.
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.
According to fund managers, expectations of a 25-basis-point increase in the cash reserve ratio of banks have heightened in the wake of RBI's surprise twin moves to make short-term money dearer as part of its attempts to curb the rupee's volatility.
When banks deposit their money with RBI, the central bank offers government securities of equal value. But now, it could be running out of enough securities to offer banks against the overnight deposits.
Weighed down by a weak rupee, the Reserve Bank on Tuesday chose to keep all key interest rates unchanged and asked the government to take urgent steps to reign in the high current account deficit.
It may be a 'no-go' for banking licences to large industrial houses.
While banks are not as exposed as the corporate sector during the initial stage of the pandemic, the strain on lenders could ultimately be profound. Banks face a second-order hit compared with the corporate and household sectors.
CRR to remain unchanged at 4.00 pc this fiscal
Bajaj Finance was the biggest loser in the Sensex pack, tanking up to 8 per cent, followed by Hero MotoCorp, IndusInd Bank, Maruti and HCL Tech. Axis Bank, ITC, NTPC and M&M were among the top gainers.
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.
Barring stray references such as the 'dual control' of banks and shifting the goalposts during demonetisation, he is not in a fault-finding mode with the government, notes Tamal Bandyopadhyay.
For now, the concerns over bad loans have taken a back seat; a bigger challenge for the banking community is credit growth, explains Tamal Bandyopadhyay.
An action on the rate front is unlikely to figure in Rajan's plan for the moment.
The Reserve Bank Officers Cooperative Credit Society, which caters to the credit needs of RBI officers posted all over India, has a fixed deposit of Rs 105 crore in the bank on which the RBI has placed various curbs for six months following revelations of irregularities.
Interest rate on fixed deposits between 7-179 days has been reduced to 7 per cent from 7.5 per cent, SBI said in a statement.
The cut in the policy rate by RBI will help lower interest rates
RBI has cut policy rate thrice during 2015.
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
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.
Chances of a rate cut in April improve if core inflation continues to ease, growth falling below the projected 7.2% for FY19 and if the global trade slowdown exacerbates.
The Reserve Bank of India (RBI) on Friday decided to leave the benchmark interest rate unchanged at 4 per cent but maintained an accommodative stance, implying rate cuts in the future if need arises to support the economy hit by the Covid-19 pandemic.
The chances of a rate cut in September have risen.
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Chidambaram further said government has taken a number of fiscal and administrative measures from time to time to contain inflation especially food.
The additional measures to check exchange rate volatility comes within 10 days of RBI taking stern steps to suck out liquidity from the system.
Record liquidity infusion by the central bank in the banking system during the financial year 2020-21 amid sluggish economic activity resulted in banks investing more in safe government papers than in extending loans, data from Reserve Bank of India (RBI) showed. This trend has not been seen in nearly two decades, barring 2016 - the year of demonetisation.
This may free up resources for productive or lending purposes.
Much depends on how the liquidity situation evolves over the coming months, with greater clarity expected from the next monetary policy meeting scheduled for December 7.
The RBI has hiked repo or short-term lending rate up by 0.25 pc to 7.75 pc.
The year 2015 is likely to see lower rates to support growth and the Reserve Bank is expected to cut key policy rates by 0.25 per cent in February's monetary policy review meet, says a Bank of America Merrill Lynch report.
Observing that MSME sector plays an important role in the growth of the Indian economy, RBI said the restructuring of the borrower account has been extended by further one year to March 31, 2021.
A special Central Bureau of Investigation court in Mumbai has convicted four former bank officials in one of the multi-crore securities scam cases and sentenced them to three years imprisonment, 25 years after the scam involving 'Big Bull' Harshad Mehta came to the fore.
The Reserve Bank of India has already reduced the policy rate by a total of 75 basis points, or 0.75 per cent, since January.
Reserve Bank is scheduled to announce its bi-monthly monetary policy on August 3.
Of the 52 economists polled, 50 expect the policy repo rate to remain at 7.25 per cent, and 47 of 48 respondents see the cash reserve ratio, or the portion of deposits banks have to maintain with the central bank, unchanged at 4 per cent.
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KC Chakrabarty who was appointed as RBI deputy governor in 2009, is considered frank with his views.
Joy Thomas stated that one large account -- HDIL -- was the sole reason for the present crisis that led to the regulatory action on Tuesday when Reserve Bank of India superseded its management and placed it under an administrator for the next six months.
All categories of NRI deposits saw net inflows in July.
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